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Homeless International

BRIDGING THE FINANCE GAP IN HOUSING AND INFRASTRUCTURE

KENYA: NACHU - A Case Study

By Margaret OriaroDRAFT: Not for quotation. January 2000

Bridging the Finance Gap in Housing and Infrastructure – NACHU case study 2

CONTENTS

1. BACKGROUND CONTEXT................................................. 51.1 The Country ............................................................. 5

1.1.1 General .................................................................................................51.1.2 Overview of Housing Policy for Kenya..................................................51.1.3 Reasons for Poor Housing....................................................................61.1.4 Government Plan to Combat the Housing Problem..............................7

1.2 Nairobi Province ......................................................... 91.2.1 General .................................................................................................91.2.2 Housing and Infrastructure Conditions................................................101.2.3 Historical Evolution of the Slum Settlements in Nairobi ......................11

1.3 Low Income Housing and Infrastructure .............................121.3.1 Housing Policy and Delivery System ..................................................121.3.2 Government Involvement in Housing Delivery ....................................131.3.3 External Support .................................................................................151.3.4 Role of Local Authorities in Infrastructure and Housing Delivery ........18

1.4 Non-Governmental Organisations .....................................191.4.1 General ...............................................................................................191.4.2 Regulatory Framework and Functions ................................................201.4.3 Community Based Organisations .......................................................211.4.4 Women’s Participation ........................................................................23

1.5 Financial Institutions and Micro-Finance Agencies ..................241.5.1 Financial System and Regulatory Environment ..................................241.5.2 Can Commercial Banks lend to the poor? ..........................................251.5.3 Micro-Finance Agencies in Kenya ......................................................261.5.4 Regulations and Procedures regarding Foreign Loans and Grants ....30

1.6 The Co-operative Housing in Kenya...................................311.6.1 General ...............................................................................................311.6.2 National Co-operative Housing Union.................................................331.6.3 Sources of Funds for Housing Co-operative Projects .........................351.6.4 External Support to Housing Co-operatives........................................361.6.5 Kenya Union of Savings and Credit Co-operative Society..................371.6.6 Co-operative Housing as a Model of Shelter Delivery ........................371.6.7 NACHU Rehabilitation Fund ...............................................................381.6.8 NACHU Institutional Capacity .............................................................411.6.9 Steps to Accessing Forex Loans ........................................................41

2. BELLEVUE HOUSING PROJECT.........................................432.1 Project Description and Overview.....................................432.2 Overview of Main Stakeholders.......................................452.3 Risk Analysis by Stakeholders ........................................46

2.3.1 Political Risk .......................................................................................462.3.2 Environmental Risk.............................................................................472.3.3 Legal Risk ...........................................................................................482.3.4 Institutional Development and Implementation Risk ...........................49

2.4 Risk Management and Mitigation by Stakeholders ..................513. OPPORTUNITIES FOR EXTERNAL OFF-SHORE FUNDING .........53


List of Abbreviations and Acronyms

NACHU National Co-operative Housing UnionNGO Non Governmental OrganisationUK United KingdomYCO Youth Charitable OrganisationUSAID United States Agency for International DevelopmentHIV/AIDS Human Immuno-Deficiency Virus AIDSHFCK Housing Finance Company of KenyaCDC Commonwealth Development CorporationCBO Community Based OrganisationNHC National Housing CorporationNSSF National Social Security FundSTD Sexually Transmitted DiseasesNHC National Housing CorporationNCC Nairobi City CouncilK-REP Kenya Rural Enterprise ProgrammeKCB Kenya Commercial BankBBK Barclays Bank of KenyaSCB Standard Chartered BankILO International Labour OrganisationKWFT Kenya Women Finance TrustMFI Micro-Finance InstitutionsNCCK National Council of Churches of KenyaIFAD International Fund for Agricultural DevelopmentGOK Government of KenyaGDP Gross Domestic ProductNBFI Non-Bank Financial InstitutionUNDP United Nations Development ProgrammeCBK Central Bank of KenyaSACCO Savings and Credit Co-operative SocietyUSD United States Dollar (US$)WWB Women World BankingKSh Kenya ShillingsWEDCO Women Economic Development Company (CARE project)PCEA Pentecostal Church of East AfricaITDG Intermediate Technology Development GroupSISDO Small Holder Irrigation Scheme Development OrganisationUNCHS United Nations Centre for Human Settlement (HABITAT)KUSCCO Kenya Union of Savings and Credit Co-operative SocietyPVO Private Voluntary OrganisationAALC African American Labour CentreCOTU Central Organisation of Trade UnionsKNUT Kenya National Union of TeachersNISCC Nairobi Informal Settlement Co-ordinating Committee


PREFACEThe consultant attended a six days research orientation organised by HomelessInternational in Yellamanchili, Andhra Pradesh, India, prior to carrying out thisstudy. The orientation focused on the work of the Youth Charitable Organisation(YCO), a non-profit rural development organisation based in VisakhapatnamDistrict of Andhra Pradesh, India.

The work in Kenya involved reviewing documents and publications by: theMinistry of Planning and National Development, Ministry of Lands andSettlement, Local Government, Department of Co-operative Development, WorldBank, USAID, local banks and financial institutions, leading micro-financeinstitutions in Kenya, the NGO Council and discussions with staff of NACHU andmembers of the Bellevue community project.

I would like to thank all the staff of NACHU and particularly, the Acting GeneralManager, Mrs. Mary Mathenge for providing materials and information onhousing co-operatives; Mr. Jim Onyango for assisting in data collection; Mr. WillisOdeck for editing the document and providing useful comments on micro-financesystems; and Ruth McLeod, Chief Executvie, Homeless International, for herguidance and support.


1. BACKGROUND CONTEXT

1.1 The Country1.1.1 General

Kenya has a total land area of 569,259 sq. km, with a population estimated at28.7 million in 1997. The population projection for the year 2000 is 30 millionpeople. The annual population growth rate lies between 3.2-3.3% p.a., still oneof the highest in the world. Average life expectancy is around 57 years but this isfalling drastically with the spread of HIV/AIDS. The country is divided into 8administrative provinces, with Rift Valley being the largest and Nairobi thesmallest province. The Kenyan economy remains dominated by the agriculturalsector although there has been a decline in production levels from 38% of GDPin 1963 to 30% in 1998. Principal exports include tea, coffee, horticulturalproducts, petroleum products, cement and pyrethrum extracts, and are exportedmainly to Uganda, Tanzania, UK and Germany. The major structural problemsfacing Kenya are poverty and unemployment.

Kenya like any other developing country has been experiencing rapidurbanisation. The urban population is currently estimated at over 15 millionpeople. Rapid urbanisation has resulted in the proliferation of self-planned slumsettlements in many urban areas. Major towns like Nairobi, Mombasa, Kisumu,Eldoret and Nakuru have tended to have a large share of this development. Insuch areas services are not ‘officially’ provided except for isolated cases, such asprovision of water points.

1.1.2 Overview of Housing Policy for Kenya

One of the main objectives of the Kenya Government has been the provision ofdecent housing for its population in both rural and urban areas. According to theKenya National Development Plan 1997-2001, the housing demand is expectedto rise in the urban areas from 234,000 to 255,500 units annually during the planperiod. Table 1 shows the projected demand and the estimated cost of meetingthe stated demand.

Table 1: Kenya Housing Needs and Investments in 1997 and 20011997 2000

Urban Rural GrandTotal

Urban Rural GrandTotal

Units (‘000) 101.5 287.4 388.9 127.7 303.6 431.3New Units 96.6 234.0 330.6 123.2 255.5 378.7Investments(KSh Bln.) a

27.6 32.8 60.4 39.0 38.7 77.7

Fml Finance KSh Blnb

16.6 13.1 29.7 23.4 15.5 38.9

InfrastructureInvestments(KSh Bln)

3.4 22.8 26.2 4.2 25.5 29.7

Notes: a-1995 prices, b-Assumes 60 per cent investments from formal sources in urbanareas; 40 per cent rural areas. C-new units only; gross densities of 1,500 persons perhectare are assumed. Fml-Formal, Bln-Billion

Source: Republic of Kenya: National Development Plan, 1997-2001


The above table indicates that KSh 16.6 billion in constant 1995 prices wasrequired to meet total urban formal financial needs in 1997 alone, rising to KSh23.4 billion in 2001. This is in contrast to KSh 26.3 total commercial bank creditto private sector in 1995. Hence, formal sector resources are unlikely to cater forurban housing. Indeed, in the past, the formal sector has rarely provided morethan 20 percent of the required financing for urban housing.1

1.1.3 Reasons for Poor Housing

Due to reasons explained below, the housing situation in both urban and ruralareas has been deplorable with most housing units failing to meet minimumstandards of durability, sanitation and space.

a) Finance: During the first five years of independence, the role of theGovernment was to encourage the private sector to build more houses and assistlocal authorities through the National Housing Corporation to expand their publichousing programmes and the Local Government Loans Authority to financeassociated off-site infrastructure. The Local Government Loans Authority is astatutory body under supervision of the Ministry of Local Government chargedwith the responsibility of on-lending funds from Central Government or from othersources to local authorities in Kenya.

To stimulate the private sector, the Government - in collaboration withCommonwealth Development Corporation - established the Housing FinanceCompany of Kenya (HFCK) at the beginning of 1966. The main objective ofHFCK was to make loan funds available to people wishing to acquire their ownhomes in the main urban centres. Although an elaborate financial system hasdeveloped in Kenya since independence, the housing finance sector has notbeen able to adequately respond to housing needs of Kenyans in both urban andrural areas.

Mortgage lending by financial institutions goes mainly to middle and high incomehouseholds and is concentrated exclusively to homeowners in the urban areas.Low-income households are unable to qualify for such loans due to stringentlending terms that include high qualifying incomes, high interest rates and shortrepayment periods. While the Building Societies lending rate has gone up from14.5% in 1988 to 24.9% in 1998 an increase of almost 71%, the CommercialBanks deposit rates have declined by an average of 21% during the same period(Annex II).

b) Land: The high demand for land by competing interest groups i.e.Government, private sector, residential groups and individuals has pushed pricesup. Public land is almost exhausted in urban areas while most of the availableland is unplanned and has no basic infrastructure. Insecurity of tenure and theslow procedure of issuing title deeds for land converted from agricultural toresidential use have been major handicaps.

c) Building materials: Building materials constitute the single largest inputin construction and account for over 70% of the total cost. The high cost ofbuilding materials has limited the quantity and quality of housing stock producedin the country. During the period 1988-1998 the price of a 50 Kg. bag of cement,a major input in construction, increased by 397% (Annex II).

1 Republic of Kenya: National Development Plan 1997-2001


d) By-laws and Planning Regulations: The current building by-laws andplanning regulations have tended to favour high-income earners by specifyingvery high standards. The outdated building code regulations and zoning lawsmake housing expensive and encourage non-adherence to regulations. TheGrade II by-laws, which were meant to be friendly to low income earners havenot been adopted by many local authorities.

e) Enabling Legislation: The provision of housing in Kenya is not governedby one comprehensive Act of Parliament. Instead it is regulated by various Actsand delegated legislation, which include: the Local Government Act, PublicHealth Act, Building Society’s Act, Town Planning Act and Housing By-lawsformulated by various local authorities. In the process of planning, designing andimplementing housing projects, delays are experienced because of the need torefer to the various Acts and delegated legislation. However, the approvedSectional Properties Act, which governs ownership of shared properties, hasencouraged investment in high rise flats by private developers.

f) Capacity: Limited institutional capacity in both Central GovernmentMinistries and Local Authorities and inadequate co-ordination of actors often leadto duplication of efforts. The Minister of Housing cannot direct any action in thehousing sector because he has no legal powers. The present Housing Act Cap117 covers only operations of the National Housing Corporation. The newHousing Act under review covers the operations of other housing agencies andorganisations. This is intended to strengthen the role of the Ministry in facilitatingstakeholders to increase their housing production capacities.

1.1.4 Government Plan to Combat the Housing Problem

An Action Plan - prepared in 1995 by the Government in consultation with thelocal authorities; private sector, CBOs and NGOs - set in motion the followingstrategies meant to alleviate the shelter problem. Most of these plans were to beachieved by the year 2000, and indeed some have already been achieved.

a) Infrastructure ProvisionBy January 1998, the Ministry of Housing and Settlements was to have in place acomprehensive long-term plan for upgrading all the slum and squattersettlements in major municipalities. This was to be based on experience gainedfrom one of the slum rehabilitation Programme called the Mathare-A4 Scheme inNairobi being implemented by the Catholic Church with financial assistance fromGermany. According to the Ministry of Local government a comprehensive planis already in place, but implementation has been hampered by lack of funds andlack of alternative land on which to reallocate those displaced.

The Ministry of Local Government is implementing a plan of action to reconstructdilapidated residential infrastructure in informal but permanent housing estates.The Kenya Government is one of the recipients of the El Niño emergency fundsfrom the World Bank and other donors for the repair of infrastructure damagedduring El Niño rains. A number of city streets including those in informalsettlement areas (e.g. Kibera and Majengo) have been repaired. The work is ongoing. The World Bank also provided funds for improvement of water supply toresidents of Nairobi including installation of water kiosks in the slum areas.

b) Land Issues


The Ministry is also considering the following: institutionalising an ad-valorem taxon urban land based on its market value as a means of reducing speculative landpurchases; reviewing zoning laws and land use regulations to ensure theyconform to market conditions; and producing a comprehensive land use andhousing policy based on needs for rural-urban balance, industrialisation andurbanisation.

According to a 1998 report on Urban Land Tenure by Intermediate TechnologyDevelopment Group (ITDG), the Government has to subsidise the cost of landbecause most households cannot afford the full repayment costs for public land.The increased demand for land by the low-income groups has led to theemergence of various formal and non-formal developments such as illegal andnon-authorised subdivisions. Such developments offer plots at prices affordableto the lower income groups and are usually done by specialist land agents thatbypass official planning standards and complicated bureaucratic procedures. In1999, the Government established a Commission of Inquiry into the land systemsin Kenya that will review land tenure and land use policies in both urban and ruralareas.

c) Institutional Capacity BuildingStaff capacities are being built at both central and local government levels. ThePublic sector has been reorganised to allow NGOs and CBOs to fill in institutionalgaps. The Government is currently under pressure from the World Bank and IMFto cut down the size of the civil service including the local authorities. A numberof changes have already been made at senior levels. Participation of CBOs andNGOs has been encouraged in all sectors. This is evident by the relaxedNGO/CBO regulatory framework (see section 1.4).

d) Environmental IssuesThe National Environmental Action Plan policies with respect to legislation,institutional framework and linkages are now incorporated in the new HousingPolicy, which is still under discussion.

e) Other Government ActionsIn addition the following have been undertaken:• Preparation of the National Housing Development Programme up to the year

2010.• Revision of the National Housing Policy in order to respond appropriately to

current needs.• Revision of Building By-laws and Planning Regulations in liaison with the

relevant Ministries and Agencies.• Enactment of the Sectional Properties Titles Act.• Formation of Nairobi Informal Sector Co-ordinating Committee.• Registration of Shelter Forum.

Nairobi Informal Settlement Co-ordinating Committee (NISCC) was formed inMarch 1996 under the aegis of Nairobi Provincial Commissioner. The committeecomprises of all key players in the housing sector from government, non-governmental organisations and donor agencies. The main objective is to beable to co-ordinate all development activities in the City’s informal settlements.The Committee has already produced an Informal Settlement DevelopmentStrategy that outlines the policies and implementation framework to be used fordevelopment within the informal settlements. The Nairobi District Development


Committee and Nairobi City Council (NCC) have adopted the strategy document.The City Planing and Architecture Department of NCC co-ordinates the activitiesof the development strategy on behalf of the Council.

The Committee which meets monthly, caries out its work with assistance of thefour following sub-committees:• housing, land tenure, physical planning and infrastructure;• environment, health and sanitation;• education; and• income generating activities, employment and skill development.

The vision of NISCC is for both the central government and the city authoritiesput in place poverty eradication strategies and mechanisms to achieve socio-economic development which will:! directly benefit the poor;! improve the access of the poor residents to the means to achieved increased

productivity;! improve access of informal settlement residents to improved infrustructural

services, shelter and a healthier living environment;! increase access of the poor to educational and training opportunities; and! ensure environmental sustainability.

Shelter Forum was established in 1990 and registered as an NGO in 1995. It is acoalition of institutions and individuals concerned with pertinent shelter issues. Todate it has 600 key actors in shelter, 38% of these being community basedgroups. Its four major programmes include research, advocacy, extension andnetworking. The key issues it aims to address are:! inadequate building by-laws;! standards and regulations which severely constrain shelter development,

particularly in low income urban environments;! controversial land policies that lead to irregular and unfair land allocations at

the expense of the majority of the poor and critically affect shelterdevelopment in urban areas through evictions and demolition of informalsettlements;

! inadequate policies on housing rights, specifically those that fail to protect therights of women, children and other marginalised groups to decent andaffordable shelter; and

! poor information flows among institutions and individuals on buildingtechnologies and techniques, approaches and options in shelter.

The Government hopes that the above measures will provide incentives for theprivate sector to mobilise resources and to invest in housing sector.

1.2 Nairobi Province1.2.1 General

The city of Nairobi, Kenya’s capital, started as a railway camp in 1899 and soonbecame a centre of communication, administration and commerce. Over timethe town grew in size and function to become the major city in East Africa.Nairobi’s current population is about 2 million (1993). Between 1979 and 1989 itsrate of growth was about 4.5 % p.a. While this has declined from its peak of 7.1% between 1969 and 1973, the rate is still high. Nairobi’s urban district coversan area of approximately 30 square kilometres. Nairobi City Council provides


infrastructure services within these areas. Nearly 45% of Kenya’s urbanpopulation live in Nairobi, thus straining Nairobi’s social and physicalinfrastructure as well as the ability of Nairobi City Council to finance and maintainsuch services.2

1.2.2 Housing and Infrastructure Conditions

Over 55% of Nairobi’s residents live in either the slums or unplanned settlements.It is estimated that the informal population in Nairobi is between 50-70% of itsalmost 2 million inhabitants. Population growth in the slum areas is estimated tobe 4-6% p.a. Virtually all planned and fully serviced estates were developedduring the colonial era or within the first 15 years of independence. According tothe estimates by the Ministry of Housing and Settlements, of the 234,000 housingunits needed annually, almost 50 per cent are needed in Nairobi. However, lessthan 4% of this requirement is provided for, and it is a long time since the citygovernment developed residential houses. Estates like Dondora, Umoja, Kibera,Zimmerman, Githurai, Majengo, Korogocho, Mathare, Kariobangi North, Kayole,Njiru, Ruai, Kawangware, Riruta Satellite are the manifestation of unplannedpolicies.

Nairobi has been affected by the rural urban migration, increasing numbers flockto the city in search of income and better livelihood. Because of these high ratesof migration, informal settlements in Nairobi currently located in Makadara,Kibera, Kangemi, Westlands, Embakasi and Pumwani have grown rapidly. Theproduction of low cost housing which is affordable to low income migrants hasnot kept pace with demand due to high building standards required by the localauthorities, a scarcity of appropriately zoned land, and development bias towardsmiddle and upper income groups. Land tenure and tenancy in these settlementsdiffer according to each settlement’s historical development. Some people areillegally squatting on government land or below electric power lines behindindustries. Others have built cluster of huts within original large farming estatesannexed by the City Council when reallocating the squatters or after fire breaks.There are also areas that were temporality leased by the government during thecolonial era and whose ownership is still unclear.

With high population growth in the slum areas, the population density is also veryhigh. In some areas, a plot of 25 by 75 feet has as many as 25 rooms. Often, afamily of 4-5 people occupies each room. The average income in the slums isKSh 500 per month, which is below the official poverty line3 of KSh 980 for ruralareas and KSh 1490 for urban areas. There are however, a few rich people whohave high income from illegal trade such as smuggling, prostitution, and illegalbrewing. The majority of residents are self-employed in petty trading or casualunskilled work. Trading or hawking in small kiosks along the paths are the mainoccupation. Those employed are working mainly as clerks, messengers, drivers,and watchmen in city offices. Many residents, mainly women and youth, areunemployed. In nearly all areas, individuals fetch tapped water from nearbysettlements and sell it to the informal residents for between KSh 3-10 per 20-litrecontainer. Waste is disposed of by throwing it outside the structures, few havedug pits used as garbage collection points. The City Council is unable to copewith the garbage collection. Toilet facilities are inadequate, it is not uncommon to

2 World Bank: Kenya Impact Evaluation Report. Development of Housing, Water Supply andSanitation in Nairobi, 1996.3 Poverty line established by the Kenya Government in 1994


see open areas used as toilets, causing a serious health hazard, particularlyduring the rainy season.

All slums have temporary roads and numerous footpaths, except forKawangware, which has tarmac roads. Vehicular access is limited due to roughterrain and closeness of the houses. Although transportation to the city centre iseasy, as most slums are adjacent to areas well served by public transportsystem, 50% of slum dwellers walk to their places of work, as they cannot affordthe high transport costs.

There is no electricity to the individual shack structures although some areashave street lighting. Numerous private clinics can be found around the slumareas, many offering services at unaffordable rates. The nearby City Councilhealth facilities, which could offer subsidised health services, are often withoutdrugs and are overcrowded due to acute shortage of clinical personnel. Thosewho can afford to, use private doctors and clinics, but most cannot afford suchcare. Consequently, many die from common diseases which could otherwise betreated such as diarrhoea, acute respiratory infections, STD, malaria etc. Most ofthe adult residents aged over 50 years are illiterate while most youth attain onlyprimary level education due to lack of proper educational facilities and theirparents’ inability to afford uniforms, books, etc.

The houses comprise of various categories and sizes. Some are made of mud,others are flattened tin or cardboard and some are mud, and wattle covered withplaster or corrugated iron sheets. The average room size is 10x10 ft. Thedwelling conditions are often poor with no ventilation and generally overcrowded.Even with these poor conditions people are willing to pay high rents, as they arethe only source of cheap shelter. Rents vary from KSh 80-500 p.m. depending onthe condition of the building and the quality of the construction material used.

1.2.3 Historical Evolution of the Slum Settlements in Nairobi

The poor housing conditions in many urban areas in Kenya may be partlyexplained by the housing policy which Kenya pursued before independence. Thecolonial Government did not expect Africans to be permanent residents of urbanareas. The Africans working in urban centres were also not expected to bringtheir families along, except where such individuals were also employed. For thisreason, accommodation offered provided only bed spaces for families and/orindividuals. This policy in a way set a precedent for poor housing, especially forlow-income groups.

Local by-laws prohibited Africans from living in residential areas zoned forEuropeans. During the first twenty years of the century, all Africans lived inunregulated settlements, ‘in many ways more like villages than urban suburbs(Bujra 1973:10). However, these were gradually demolished and both landlordsand tenants were obliged to live in a demarcated ‘Native Location’. One suchplace was Pumwani (a place of rest).

The Pumwani settlement was established in 1922 for Africans and Arabs to rentplots from the Municipal Council and to erect lodging houses out of traditionalmaterials. During this period, many Africans were still living in Pangani, whichwas also an informal settlement. In 1938 Pangani was demolished and Africanshad to move elsewhere. One of such areas that African moved to, was Mathare,which by 1950 had about 5000 people. This was one squatter area that was quite


resilient. Several times the residents were expelled but gradually returned. It alsobecame an area where squatters who had been expelled from other areas foundrefuge.

The other old slum squatter settlement within Nairobi is Kibera. The origin of thissettlement dates back to 1912 when the ex-soldiers who were mostly Nubianswere settled in the area. Apart from the original settlements, other villages havebeen built since 1956. The original settlers (Nubians) were only given residentpermits with instructions that the houses must be built of temporary materials.This was because the colonial Government had plans of developing the area. By1993, the settlement was estimated to have about 248,000 inhabitants living on aterritory of 225.6 hectares.

Apart from the earlier informal settlements enumerated above, other new informalsettlements have developed since the 1970s. These include Korogocho, Soweto,Kayaba, Kangemi, Kariobangi and Kawangware among others.

1.3 Low Income Housing and Infrastructure1.3.1 Housing Policy and Delivery System

The Ministry of Housing estimates that currently Kenya needs 234,000 housingunits annually, a third of which is required for urban dwellings. Both the publicand the private sector provide less than 20% of the required housing units in theurban and rural areas. Inflation, which has forced up the prices of buildingmaterials, makes the housing situation worse. The month-to-month overallinflation rate increased from 7.2% in September 1999 to 8.2% in October 1999.A substantial proportion of this rise is due to the increase in food prices. Theprice of a one-kilogramme tin of maize, the main staple food for low-incomefamilies, has doubled in the last ten years (Annex II). Infrastructural costs i.e.sewerage, roads and street lighting make up about 45% of the total house cost.These costs which were hitherto provided by the local authorities, now have to befully absorbed by the house purchaser. Housing need in Kenya has been treatedlightly, arising from the assumption that the strained economic resources shouldbe used to develop more productive areas like health, agriculture and education.This has resulted in a housing deficit that has reached intolerable proportions.There is no doubt that the housing problem has been one of the major causes ofgrowth of slums and the accompanying insecurity.

The current housing policy in Kenya stems directly from Sessional Paper No. 4 of1986, “Economic Management for Renewed Growth”. This together with theNational Strategy for Kenya, 1987-2000 and the National Development Plan1997-2001 provide Government direction in the provision of shelter. The policydocument had predicted tripling of resources for housing during the strategyperiod, the bulk of which was to be directed towards small towns, sub-urbansettlements and rural shelter improvements. The amendment to the Banking Act1993, together with the review of Building Societies and specialised HousingFinance companies, was to instil much-needed stability into the financial system.The combined effect of new financial stability, reduced government borrowing,flexible interest rates, and a more positive attitude to the finance sector wasexpected to yield a desired effect of greater financial flows into housingdevelopment. This has, however, not been the case.


The housing policy also contained proposals for reorganisation of governmentagencies to accommodate greater participation of the private sector, namely,individuals, companies, co-operatives, and community groups in the shelterproduction process, than before. In line with the government policy ofdecentralisation, known as District Focus for Rural Development, the policycalled for preferential treatment to rural housing, to housing needs in small towns,and the potential contribution of the informal sector in the shelter productionprocess.

The government’s own contribution to the housing sector has been minimal, withless than 1% of the national budget being allocated to support housing projects.In the area of construction and building standards, the Government is askinglocal authorities to adopt the revised byelaws as a matter of urgency, in order toreduce the cost of housing and improve access to housing by low incomefamilies. The policy also urges the finance sector to adopt the same byelaws forpurposes of credit underwriting. The private developer is encouraged to invest inlow income housing and in low rental housing, as these are the areas of greatestdistress.

Sessional Paper No. 1 of 1986 made some important points regardingGovernment’s role in housing. Of special mention is the call for local governmentto work with private developers in sub-dividing land, the acceleration of theregulation of land tenure among existing sub-divisions, and charging marketprices for government-developed or operated sale and rental housing.4 It isnotable, however, that:• although the government has continued to define its role as that of assisting

low income households obtain adequate shelter, in the early 1970s and 1980sthe emphasis was mainly site-and service schemes; the Dondora project wasone of the earliest World Bank sponsored site-and–service schemes;although initially viewed as very successful, further schemes were abandonedwhen it was realised that the beneficiaries could not raise sufficient funds toupgrade their sites, which as a result were quickly bought out by richlandlords;

• while some attention has been given to upgrading and expanding housingfacilities in rural areas, the most government effort has been directed to theurban areas;

• the private sector played a major role in delivering housing to middle and highincome earners in urban centres particularly in Nairobi in the 1980s and early1990s5.

1.3.2 Government Involvement in Housing Delivery

a) House Construction and MaintenanceHousing is financed and supplied through a number of channels, including theMinistry of Housing, the National Housing Corporation (NHC) and localauthorities like Nairobi City Council. Funding for the development of housingcomes from national appropriations or external assistance, and it is generallychannelled through the NHC. Nevertheless, the local authorities are the mainactors in the housing arena. They take over projects developed by the NHC,both site-and-service schemes and rental complexes, and also control thebuilding standards used in their areas. In the larger cities, local authorities

4 Raymond J. Struyk and Piet Nankman. The Urban Institute, Developing Housing Strategy forKenya: Recent Housing Production. Market Developments and Future Housing Needs.5 USAID, Kenya: Private Sector Housing (615-HG-007)


handle their own project development; in the smaller towns the NHC takes on thetask on behalf of the authorities.6

All development with government funds is carried out with considerable subsidies- below market interest rates on loans and no charges for land. Where donorfunds are involved, interest rates are higher and are geared to the borrowingterms but still remain below local market rates. This is because donor-supportedprojects (World Bank and USAID) were meant to encourage private sectorparticipation in housing. The Government was therefore encouraged to lend thefunds at near market rates. Local authority-owned and managed rental housingcharge rents considerably below those on comparable private units. Localauthorities do however, exert considerable effort to collect the rents andmortgagee payments due. However, despite their considerable success withcollections in smaller towns, local authorities, including Nairobi City Council, havehad a very poor record in repaying loans to the NHC. In Nairobi, the NHC hasalready repossessed some of the estates originally managed on NCC’s behalfbecause of this poor performance.

b) Land AdministrationLand administration is under the responsibility of the Commissioner of Land, whoheads the Lands Department in the Ministry of Housing and Settlement. TheCommissioner of Lands handles the alienation of public land for housing projects,controls the sub-division and titling of private land, the registration of titles anddeeds, and is in charge of valuation for fiscal purposes. Responsibility for landuse, control and town planning is shared between the Commissioner of Landsand Physical Planners at the local and central levels. Nairobi and Mombasahave their own town planning departments and the physical planningdepartments, while the Ministry of Housing and Settlement provides assistance toother local authorities.

Land ownership is governed by a system of rules and procedures, otherwiseknown as the land tenure system which states how land may be owned. Thereare two types of law governing land ownership in Kenya: modern or statutory,and customary laws. Customary and traditional laws govern communal landownership. Statutory laws indicate how land may be owned individually orcollectively based on adopted Western European law.

Land may be government or trust land – administered by the various countycouncils for the benefit of those who reside on the land. Private land may beleasehold or freehold and owners may be individuals or groups. Land isexpensive and a most precious property for most Kenyans. Land registration isdone under the Registration of Titles Act 1918 and the Registered Land Act1963.

It is illegal to appropriate or settle on someone else’s land without permission. Inthe case of public land (belonging to the government or local authority), one maysecure an informal allocation from the local Chief or District Officer. This isadequate for purposes of building but it does not guarantee that the builder willultimately get a registered title to the land. Private land in urban areas is subjectto a local tax known as rates. In addition, owners of leasehold plots must pay anannual land rent to the landlords.

6 Garddner et al., op cit.


c) InfrastructureResponsibility for urban infrastructure and services lies with the local authoritiesand with the Ministry of Water Development which operates the water supply andsewage networks in towns, where these are not run by the local authority. KenyaPower and Lighting has the monopoly on electricity generation and supply,although there have been recent efforts to privatise the power generationcomponent.

d) Building ByelawsAttempts to review standards for low income housing in Kenya were made in the1980s and early 1990s but without much success. It was not until 1993 thatflexible standards, which allowed the use of inexpensive building materials andtechniques applicable to low-cost housing, were published. They were gazettedin July 1995, and have since come to be known as Code ’95. Most localauthorities have not however, adopted these standards.

1.3.3 External Support

a) GeneralThe government has not succeeded significantly in getting private financialintermediaries involved in making mortgage loans for its projects. Localauthorities have been inflexible in lowering building standards, even on donor-financed projects, private developers are generally unable to use the lowerstandards applicable to government projects and, despite some recentinnovations, there is little public-private co-operation in the development ofserviced sites or units for lower income households.

Two innovative techniques used in the past include:• the World Bank Secondary Towns Project. Here local authorities provided

infrastructure services to government-owned land, which seemed to speed upthe development process for moderate to lower income housing; and

• the USAID Housing Guarantee Project.

b) USAID Housing ProjectsThe USAID support covered the Third Nairobi project, Umoja II, the Small TownsShelter and Community Development Programme and the Private Sector LowCost Housing Programme. The last two were supported by grants funded fromDevelopment Assistance and housing guarantee fee income. The Umoja II andSmall Town Programme were both authorised in late 1980. The early projectsfunded under the bi-lateral USAID-Kenya Housing Guarantee Programmeinclude the Kimathi, Umoja I and II housing estates. Over 7,000 housing unitswere provided in the Umoja I and II estates.

The housing projects constructed with funds from these aid agencies were meantto benefit the lower income groups living in the urban areas, through cheapmortgage, tenant purchase schemes, site-and-service or rental schemes. Whilethese efforts did provide additional housing in the market, many did not benefitthe intended target groups and, even where they did, the impact was minimalgiven the level of existing demand. The site-and-service schemes and slumupgrading projects that followed were meant to help speed up the housingdelivery process and access infrastructure to those living in overcrowdedunplanned settlements. However, none of the projects involved the targetedbeneficiaries in the planning and implementation process and, as a result, mostof the schemes ended up benefiting the richer people who quickly bought out the


people who had first been allotted plots. Staff of NHC and municipal authoritiesdid the actual allocations.

The USAID Private Sector Housing Guarantee Programme on the other handwas aimed at inducing private developers to take on construction of low costhousing costing around KSh110,000 through the provision of mortgage financingthrough private financial institutions using donor funds. This had the potential ofintroducing both private developers and financial institutions into a part of themarket which they had little involvement in the past.

USAID needed a government decision by Parliament, to approve the PrivateSector Programme. The government was to charge a fee (to be paid to thegovernment by commercial borrowers) for assuming the foreign exchange risk. Ifthe first $20 million guarantee moved quickly and demonstrated that privatedevelopers would indeed offer lower cost housing programmes, a second phasecould have followed in 1987. During the first programme the conditions fordeveloping a secondary mortgage market were to be established, and during thesecond, mobilisation of additional resources for lower income housing throughthis market was to begin. The needed guarantee by USAID did not materialiseand the guarantee project was discontinued

Two other major projects for financing shelter and infrastructure implementedunder the same Programme in Kenya were:• USAID/Kenya Government Secondary Towns project in all eleven major

towns in Kenya implemented by the NHC; and• the Small Towns Shelter and Community Facilities project.The latter projects comprised two-roomed, expandable, core housing, costingbetween KSh70,000-80,000 per unit and infrastructure facilities provided throughlocal authorities.

As at March 1992, US$ 50 million had been spent under the Housing GuaranteeProgramme in Kenya. The Kenya Government provided a guarantee for theloans channelled through government agencies. In addition to the above, grantassistance were extended to the following organisations:• US$ 1 million to National Co-operative Housing Union (NACHU) towards

technical assistance, equipment and office acquisition;• US$ 1.2 million to Kariobangi Housing Society, supported by NACHU.

NACHU managed the construction work on core houses. The estimated unitcosts were KSh 80,000 for one-roomed units. Families were required to pay10% of the unit costs, while the rest was given as loan over 20 years at 14%p.a. The National Social Security Fund (NSSF) had committed to boost theloan to KSh 50 million, but this never happened. The objective of thisrevolving fund was to enable other groups and agencies to benefit from thefund.

Major impediments to the above housing schemes included: lack of slumupgrading policy by the government; lack of government support and sanctioningof upgrading projects; and outmoded building and planning standards at the time.

c) The World Bank Infrastructure ProjectThe World Bank approach to the shelter problem in Kenya had been through site-and-services projects. The concept was based on the idea that affordablestandards with cost recovery could facilitate the replication of projects on a largescale. The current World Bank policy emphasises public sector solutions and


reduced standards to make interventions cost effective and affordable by low-income groups.

The Bank no longer focuses upon direct housing production but ratherencourages governments to adopt an enabling role of managing housing sectoras a whole. This involves:• property rights development through cadastral surveys;• enhancing housing finance by supporting competitive, market-oriented

institutions;• improving access of low income households to credit, and• creating adequate mechanisms for cost recovery as well as provision of

infrastructure for residential land development (large-scale truck facilities,upgrading, site and services projects etc).

The World Bank supported three housing infrastructure projects in Kenya. Thefirst project involved providing additional sources of potable water supply forNairobi and to strengthen the Water and Sewerage Department of Nairobi CityCouncil. The second and third projects involved developing and upgradinghousing units for the urban poor, as well as expansion of sewerage coverage.

All the three projects were generally successful. The water supply has largelykept pace with increased population. Increase in the number of water kiosks inthe slums increased availability of water in these areas. The only problem wasthat individual kiosk owners charged more than six times what the Councilcharged them. The possibility of involving CBOs and NGOs in running the kioskswas suggested as an alternative solution.

The Urban I and II projects helped release over 8,000 housing units (each unithad expansion space for up to six rooms, but many owners constructed more) inthe market and subsequently helped expand the supply of rental rooms. Thenumber of rooms in the three project sites on Dondora, Kayole and MathareNorth was estimated at 80,000 rooms accommodating 174,000 people. The rentcharged was affordable and varied from KSh 800 – 1,500 per month dependingon room size and available facilities.

Nairobi City Council managed the loan recovery. Although the initial loanrecovery was good, the deteriorating financial and administrative structurescompromised the council’s ability to contain defaulters. Comparative costrecoveries on private and NGO-funded projects were better than those of theWorld Bank and Nairobi City Council projects. The improved infrastructure alsoincreased the price of land within the project areas. The construction ofadditional sewerage enabled at least 65% of Nairobi’s population to have accessto water-borne sewerage system.

Some of the lessons learnt in developing these projects indicated that Urbanprojects alleviated infrastructural bottlenecks in various ways, i.e. housing, watersupply and transport. The projects also illustrated that housing finance projects,if developed in an appropriate regulatory environment, can effectively target low-income beneficiaries without sacrificing sustainability. In site-and-servicesprogrammes, however, the poorest could only afford heavily subsidised outputs.Even cost-effective slum and squatter settlement upgrading, which can benefitthe poorest, suffers from deficient cost recovery.


Currently the major players in the housing market in Kenya are the private sector,building middle to high-income housing, individuals and community-basedgroups. The public sector is no longer active, except at a very limited levelthrough the NHC, the NSSF and Kenya Re-insurance.

1.3.4 Role of Local Authorities in Infrastructure and Housing Delivery

The households in the overcrowded Nairobi’s informal settlements have pooraccess to services such as safe water, sanitation and solid waste disposal, andare thus exposed to the dangers of ill health and disease.

The Council has to supply water to nearly 2 million inhabitants. The supply hasnot been able to cope up with the growing demand. The Nairobi MetropolitanPlanning and Sewerage Strategies and Sewer Master Plan was completed in1974 and has not been updated since. Sanitation facilities have therefore alsonot kept pace with growing population. The problems are particularlycompounded by the fact that housing densities in some areas are now muchhigher than originally planned and low-cost informal housing has emerged in allareas not originally intended for residential development.

In areas served by sewerage, a number of sewerage lines are blocked andoverflowing owing to poor maintenance or illegal connections, which then causeblockage. The areas not served are a health hazard. However, lack of adequatecontrol of development has made it difficult for the Council to provide adequateservices to these areas. The other problems of sewage and water relate to theCouncil’s inability to collect revenue from users. There are instances of latebilling, incorrect meter reading and lack of appropriate action against defaulters.

Nairobi City Council has been borrowing mainly for housing, water andsewerage, infrastructure development and construction of markets. Funds forUmoja I and II, Dondora site-and-service schemes were received from the WorldBank, USAID and Housing Finance Company of Kenya. Since 1990, noadditional loans have been received for housing development.

In all cases, the government guarantees funds raised externally. Thegovernment is also required to put up-front 10% of any funds raised externally.The Council’s inability to service its external debts affected the extent to which itcould raise additional external funds. The Council has therefore been raisingfunds internally from the Local Government Loans Authority and local banks tomeet its budget shortfalls. Inter-lending between departments is common andoften revenue raised from water and sewerage, for example, could be diverted tomeet the Council salaries and other administrative expenses.

Most local authorities in Kenya do not have the financial capability to financeprojects aimed at improving the services and amenities within their areas ofjurisdiction. They therefore resort to borrowing from external agencies. The lawalso allows them to issue stocks and bonds to raise revenue. This has, however,been restricted to Nairobi City Council (although the Council has not issued newstocks recently, the last stocks issued having matured in 1993).

Most of the external loans are of long term (10-40 years) with interest ratesranging from 3-6.5%, sanctioned by the Ministry of Local Government andguaranteed by the Government. Debt servicing has been a big problem to alllocal authorities due to their weak financial positions. A number of councils are


even forced to withhold staff statutory deductions e.g. social security,superannuation fund, income tax etc. A number of them also owe the LocalGovernment Loan Authority substantial amounts in unpaid loans.

The current high level of overdrafts and inability to release staff statutorydeductions on time has forced the NHC to repossess some of its housing unitsformerly managed by the councils. It is also becoming increasingly difficult forthe local authorities to raise any funds externally. The Ministry of LocalGovernment therefore recently formed Kenya Municipal Reform Programme toimprove the financial capacity of local authorities and enhance their ability tomaintain and extend infrastructure services.

1.4 Non-Governmental Organisations1.4.1 General

It has already been acknowledged that the NGO/Community Sector is making asignificant contribution to the promotion, production and improvement of shelterin various regions of the developing world.7 NGOs operate on the principle thatall people have a right to control their own destiny, with a preference for sheltersolutions based on their own community or neighbourhood. In cities around theworld, low-income groups and the communities or neighbourhood organisationsthat they form undertake most additions to the shelter stock. In many countries,NGOs play the role of originators, enablers and implementers of new ideas andmodels when working with community-based organisations and helping suchorganisations’ development efforts.

The research and other activities conducted by NGOs have contributed much tothe understanding of the nature and scale of shelter problems, and theircollaborative efforts as coalition builders is now evident in many nations, as suchcoalitions seek to influence government policies and priorities.

In many instances NGOs/community-based groups have succeeded indemonstrating alternative solutions to meeting shelter and service needs throughspecific projects, and these in turn have sometimes pointed to approaches whichhave wider applications.

In Kenya a number of NGOs have mounted commendable efforts in communitymobilisation in low income settlement. These include: Action Aid Kenya inimplementation and equipment development, the Undungu Society in themanufacture of construction equipment and mobilisation of self help groups, theMazingira Institute in setting up a credit system and training, NACHU workingwith co-operatives as a vehicle to housing delivery, Habitat for Humanity buildinghomes with rural communities and numerous CBOs working with groups ininformal settlements.

Although all the three forms of organisation (NGO, CBO and co-operatives) dowork with low-income groups, some focus only on fulfilling members’ needs whileothers aim at serving a particular target group who may not necessarily bemembers. In Kenya, co-operatives are registered under the Co-operativeSocieties Act (section 1.6), the NGOs under the Non Governmental Act and

7 UNCHS/HABITAT. Role of NGO and Community Sector. Global strategy for shelter to the year2000.-


CBOs by the Ministry of Culture and Social Services. Their regulatory frameworksimilarly differs. Operation of co-operatives and CBOs are based on a voluntaryapproach, an economic purpose and equity among members. NGOs, however,serve both members and non-members and can be formed for economicpurposes or simply for charity. The assets of the co-operative belong to itsmembers, while those of the NGOs belong to the communities they serve.

1.4.2 Regulatory Framework and Functions

The operation of NGOs in Kenya is governed by the Non-GovernmentalOrganisations Co-ordination Act, 1992 (originally 1990). The Act defines a non-governmental organisation as ‘a private voluntary grouping of individuals orassociations, not operated for profit or for other commercial purposes but whichhave organised themselves nationally or internationally for the promotion ofsocial welfare, development, charity or research through mobilisation ofresources’.

Application for registration is submitted to the NGO Registration Bureau in aprescribed form. By registering, an NGO becomes a corporate body. Anorganisation established by a state or a group of states for welfare, research,relief, public health or other forms of development assistance is not eligible forregistration under the Act.

The Act also provides for establishment of a Kenya National Council of VoluntaryAgencies, as a collective forum of all the voluntary agencies registered under theAct. The Council’s functions include: facilitating and co-ordinating the work of allNGOs operating in Kenya; advising the Government on activities of the NGOsand their role in development within Kenya; and receiving, discussing andapproving the code of conduct prepared by the Council for self regulation ofNGOs and their activities in Kenya.

No organisation registered under this Act is entitled to diplomatic or consularprivileges or immunities. NGOs are not therefore automatically exempted fromany form of taxation. Individual applications can, however, be channelled to theMinister of State through the NGO Registration Bureau. Applications may beconsidered only for value added tax on goods and services required to meet theorganisation’s objectives and on income generating activities, or income tax forexpatriate employees. Where an exemption is granted, the organisation may notdispose of any equipment for which duty has been exempted without the Board’sexpress permission.

One of the requirements for registration is production of an NGO constitution. Amodel constitution is available at the Bureau at a small fee for new applicantsunfamiliar with how to draw up one. The following are some of the specificobjectives allowed in the prototype constitution:• to raise, mobilise and disburse funds and other resources for the promotion of

the objects of the organisation; to acquire any movable or immovable propertyand any buildings or things whatsoever and sell, dispose of, mortgage, leaseor otherwise deal with all or any part of the property or rights of theorganisation;

• to enter into any arrangement with any government or authorities that mayseem conducive to the organisation’s objectives or any of them, and to obtainfrom such government or authority any rights, privileges and concessionswhich the organisation may think desirable to obtain;


• to apply to any governments, public bodies, corporation and receive gifts,donations, subscriptions in cash or kind; to establish an endowment fund forpurposes of receiving such gifts or donations; and

• to draw, execute or otherwise deal with negotiable or transferableinstruments; to invest any money not immediately required as the board of theorganisation may determine.

The model constitution does not provide for any borrowing by NGOs locally oroverseas. However, constitutions of micro-finance agencies do provide forborrowing and lending activities. The requirement is that such activities must beincluded in the individual NGO constitution and approved by the NGORegistration Board or the relevant governing body. For instance, Kenya RuralEnterprise Fund (K-REP), a micro-finance institution, was registered in March1999 by the Central Bank of Kenya to operate under the Banking Act whileretaining its NGO status.

NGOs operating in rural areas do not require planning and building approvals forimplementation of housing and infrastructure projects. However, those wishing toundertake such projects within municipal boundaries have to comply with thebuilding byelaws, public health conditions and zoning regulations.

All property owned by NGOs is normally held in trust by appointed trustees andcannot be sold without the Board’s approval. NGOs are not allowed to bedissolved without the Board’s prior written authority, following a writtenapplication signed by three of the officials of the organisation. Upon dissolution,the NGO’s remaining assets have to be distributed to other organisation(s) withsimilar objectives.

1.4.3 Community Based Organisations (CBOs)

CBOs are grassroots groups whose broad goals are self-development. Theirstrength lies in their ability to mobilise members cohesively, tackle localproblems, and seek common solutions. CBOs relate closely with members at thegrassroots level and are therefore better placed to understand their aspirationsand interests. They are, however, constrained by their weak resource base andlimited exposure.

In Kenya, CBOs are key players in the field of human settlement alongside thegovernment, local authorities, the private sector, NGOs, co-operatives, religiousorganisations, donors, professional bodies and other CBOs (youth groups,women, groups and neighbourhood associations). All CBOs in Kenya areregistered and regulated by the Ministry of Culture and Social Services, and theiroperations are restricted at Divisional or District levels. Unlike NGOs, they arenot allowed to work across provincial administrative boundaries. Registrationforms are available from the Provincial Director of Social Services. TheChief/District Officer and Social Development Officer of the intended area ofoperation must endorse the application for registration. The application togetherwith the endorsements and the CBO constitution as approved by members arethen submitted to the Provincial Social Development Officer for registration.

There is no Act or guideline for the operation of CBOs. The Ministry of Cultureand Social Services simply expects them to adhere strictly to their internalconstitution as approved by members. The Divisional Social DevelopmentOfficers are supposed to visit the CBOs regularly and gauge their performance.


Occasionally, they also organise seminars and workshops for CBOs to enhancetheir efficiency and effectiveness.

To date there are thousands of CBOs registered within the eight provinces andinvolved in different activities e.g. orphan care, health education, members’welfare, sanitation, education, housing (actual construction and building materialprovisions), credit, etc. In urban centres, a number of CBOs have been formedpurposely to meet members’ needs. Examples includes CBOs established toraise funds to transport bodies of members’ home following death, to meetmembers’ children’s education or medical expenses. Such CBOs act as supportgroups for members at times of need and are very common in the slums.Membership is based on some common bonding factor, such as belonging to thesame tribe, living in the same area, working for the same employer or in thesame trade, or simply gender. Many women's groups operate informally, relyingsimply on goodwill and trust among their members.

Data from the Ministry of Culture and Social Services indicate that there are23,000 women’s groups around the country with varying activities.8 The mainactivities include rotating savings clubs (known as ‘merry-go-rounds’), farming,maize-milling and other agricultural services, handicrafts, transport and housingconstruction.

Table 2: Statistics on Women’s GroupsKenya No. of Groups Membership Total

Contribution(KSh)

1992 23,000 895,0001995 32,737 1,072,149 295.9 million1997 82,205 3,096,102 352.9 million1998 97,319 3,900,548 381.8 million

Source: Graham Alder and Paul Munene, October 1999. The Contribution of Co-operatives to Shelter Development in Kenya. Income for 1992 not available.

The number of women groups increased steadily from 23,000 in 1992 to 97,319in 1998, indicating that there are perceived benefits in joining these groups. Thesize of groups ranges from 15-50 individuals. Larger groups are discouraged,because they are difficult to manage. The groups operate like co-operatives, i.e.they are non-profit, have elected leaders, hold regular meetings and makeregular financial contributions.

Most CBOs operate in rural areas and do not therefore require planning andbuilding approvals for the implementation of housing and infrastructure projects.However, like NGOs, they will require municipal approval to ensure they abide bythe building byelaws, and the health and zoning regulations if the project islocated within the municipal boundaries. They are free to own, sell, transfer orinherit land, as long as this is done as part of their normal business. They are notallowed to accept deposits from the public, although they can accept depositsfrom members or well-wishers and lend on to members at agreed terms. Most‘merry-go-rounds’ are managed by CBOs.

8 Graham Alder and Paul Munene, October 1999. The Contribution of Co-operatives to ShelterDevelopment in Kenya.


To external agencies, CBOs are important as they are the institutional means forengaging with communities to determine their needs in a participatory approachand are also vehicles for delivery. According to a 1992 report provided by theMinistry of Culture and Social Services (the Women Bureau Division),approximately 1,200 of these groups were engaged in construction or housingactivities in one way or another. Some of these groups have since converted toformally registered housing co-operatives. Examples include Voi WomenHousing Co-operative, Kiriti Women Transport and Housing Co-operative, andKwa-Rhoda Neighbourhood Housing Co-operative. The Masai Housing projectin Kajiado, supported by a British NGO, Intermediate Technology DevelopmentGroup (ITDG), to construct 30 housing units, is however still a CBO. All theabove groups are outside Nairobi province.

In Nairobi, Mukuru Recycling Centre is operated and managed by people living inthe slums surrounding the city dump site at Dondora. Various groups areinvolved in recycling waste materials, composting and urban agriculture, andmanufacture of cooking fuel as well as support to children. In Kibera, Maji yaUfanisi (an NGO formerly known as Water Aid) is supporting an CBO calledUshirika wa Usafi which provides water to Laini Saba village. These are just afew of the CBOs involved in the provision of infrastructure and housing.

1.4.4 Women’s Participation

Poor housing, poor and overpriced water supplies, poor drainage, and poorhealth and sanitation services in Nairobi’s slums place a grossly unfair burden onthe women. Their incomes are low, their responsibility for childcareoverwhelming, and they have to fetch water and domestic fuel, and to providefood for their families. Many find it impossible to do all these things, as in mostcases the costs are well beyond their meagre incomes.

A number of women are forced to hawk away from home because zoning lawsdo not allow hawking activities within residential areas. Considering theirparticipation in site and service schemes, it is worth noting that 44% of the WorldBank sponsored site-and-service scheme were allocated to women. Most ofthem have migrated from their rural areas to the city because of loss of landrights in rural areas.

Most low-income families can hardly have enough to survive on and thereforerarely maintain bank accounts. A few maintain accounts with the Post OfficeSavings Bank because of the low minimum balance required (KSh 500). Toopen an account in a commercial bank, they will need two referees who must besaving with the same bank, their identity card, two passport size photographs andthe minimum cash needed, which varies with the bank selected. For example,Savings & Loans and HFCK need KSh 1,000, Barclays and Standard KSh10,000 and Kenya Commercial Bank KSh 3,000 -10,000 depending on thebranch selected. To receive loans from commercial banks, applicants must havea good saving history and appropriate collateral. The requirements are the sameregardless of the applicant’s gender.

People are free to own, sell, transfer or inherit land or property located in theurban centres. In the rural areas, however, customary laws govern propertytransfer and inheritance. Each community has its own customs and practices.The issue of inheritance by women depends on the relevant customary law


applicable. In most cases, however, preference in allocation is given first to menin the family.

1.5 Financial Institutions and Micro-Finance Agencies1.5.1 Financial System and Regulatory Environment

The Banking Act which established the Central Bank of Kenya in 1965, alsoconferred upon it regulatory and supervisory authority over financial institutions.These include control of the growth of the banking industry implemented througha licensing system, monitoring the quantity and quality of the institutions’ assetsand liabilities, imposition of minimum reserve ratios and control over networkexpansion.

The emergence of several indigenously-owned financial institutions provoked aseries of amendments essentially intended to limit entry into the banking industry.The required minimum capital for a bank increased from KSh 5 million before1982 to KSh 500 million in 1999. More stringent reporting requirements werealso instituted.

During the period of controlled interest rates that ended in 1991, Non BankFinancial Institutions (NBFI) were allowed to charge higher interest rates thancommercial banks, as a result of which nearly all commercial banks created NBFIaffiliates to deliver some and in most cases the bulk of their credits. In 1993,there were about 36 commercial banks and 60 NBFIs. In 1993, the Central Bankabolished the interest advantage to NBFIs, subjecting both to the sameregulatory arrangement. NBFIs were then encouraged to convert into banks totake full advantage of services that banks can offer, including issuing their owncheques. By mid 1999, there were 17 NBFIs and 56 commercial banks,including the newly licensed Majestic, Masacom and K-REP Banks.9

Unfortunately, 60% of deposits, loans and advances is concentrated in five majorcommercial banks. By end of 1997, seven of the largest banks accounted for77% of 512 outlets throughout the country: Kenya Commercial Bank (KCB) with180 branches, Barclays Bank of Kenya (BBK) with 87 and Standard CharteredBank (SCB) with 36. These comprised 59% of the total outlets. The rest of thebanks tend to serve special interests, sectors and communities with a largeproportion owned, controlled and geared towards Asian communities. K-REP willbe the first commercial bank with a deliberate focus on the provision of bankingservices to small-scale savers and borrowers. Besides financial institutions,Kenya has also a stock exchange with 66 participating companies, insurancecompanies, a remnant of specialised development finance institutions and a hostof hire and lease purchase institutions.

The Ministry of Co-operatives (now the Department of Co-operatives after recentchanges) under the Co-operative Societies Act regulates membership institutionslike savings and credit co-operative societies. The Co-operative Bank wasregistered in 1965 as a co-operative society and later licensed to operate as abank under the Banking Act. Its main objective is to mobilise funds to needy co-operative societies. It provides advisory and banking services through its branchnetwork in major towns and accepts deposits from individual customers. So far,the Co-operative Bank has advanced loans to co-operatives for a number of

9 Use and Impact of Saving Services for Poor People in Kenya, By Henry Mugwanga 1999.


activities, including the purchase of commercial and residential buildings,construction and farming. A Teachers’ Housing Co-operative (Kimute) inKisumu, supported by NACHU, benefited from bridging and mortgage financefrom the Co-operative Bank for the construction of 40 low cost housing units forits members in 1989.

The interest rates payable on mortgages has gone up owing to the uncertainfinancial position prevailing in the country. The lowest interest rates are offeredby the Housing Finance Company of Kenya (HFCK) at 26%. HFCK, however,directs all its mortgage holders to open mortgage-related savings accounts withtwo months repayment deposit as a precondition for lending. This amount isretained by the financial institution during the first two years of the loan. Otherbanks and building societies charge up to 30% p.a. According to experts in thebuilding industry, the high interest rates will further weaken the constructionindustry, as many potential builders find it difficult to service the loans (see alsoAnnex II).

In most cases, there has been inaccessibility of funds for the middle and low-income groups but, even when funds are available, these groups are unable toprovide sufficient/acceptable security to offer for such loans. The conservativelending terms for banks, building societies and insurance companies are usuallyunfavourable to the low-income earners. Other constraints include unavailabilityof serviced sites at affordable costs and unacceptability of low cost designsutilising local building materials.

1.5.2 Can Commercial Banks lend to the poor?

According to a recent study on the role and impact of micro-finance institutions inKenya, a few banks like Barclays, Kenya Commercial Bank and Victoria FinanceCo. have attempted to develop and implement special service schemes for thepoor, mainly in the form of credit facilities to small enterprises. Such schemesbenefited from donor financing and were therefore able to lend at below marketrates. Lately, however, a number of banks including Standard Chartered andBarclays have raised their minimum balances to open and maintain a bankaccount to KSh 10,000 (£100). Since then, most low-income families havewithdrawn their accounts from such banks.

A number of handicaps have been identified as limiting the use of commercialbank saving services by poor people. These include:• a lack of counter services or reciprocity; banks have little to give low income

groups in terms of attention and recognition;• inadequate access or convenience: most commercial bank facilities are not

within reach of the poor, so saving services devised by the poor are oftenoperated within their own neighbourhood; these are near and free fromembarrassment which the poor, especially the illiterate ones, encounter informal environments that assume literacy;

• a lack of appropriate knowledge on banking rules/procedures, leading to hightransaction costs and low returns on savings;

• associated risks of losing funds in case of disagreement among groupmembers; and

• low interest rates given on the savings deposits.

Banks and financial institutions will accept deposits from NGOs, CBOs and low-income families (both men and women) as long as they are account holders and


can maintain the minimum deposit levels. High interest rates and therequirement for physical collateral bar low-income families from accessingcommercial bank loans. NACHU has, however, been able to secure funding fromlocal banks to support the construction of 129 housing units for co-operativemembers as indicated in Table 3. Loans extended to these projects aremanaged directly by the respective banks.

Table 3: NACHU supported Projects Managed Directly by Banks

Pro

jec

t

No

. o

fu

nit

s

Dep

osi

t b

yM

em

be

rs(K

Sh

)

Lo

anA

mo

un

t(K

Sh

)

Wh

en

Co

mp

lete

d

Fin

an

cie

r

1 KenyaMedicalAss.

63 10,800,000 36,000,000 1992 HFCK/Co-opBank

2 KimuteHousing

40 1,405,965 4,686,550 1989 Co-op.Bank

3 KimmiHousing

12 1,772,586 4,431,464 1995 Co-op.Bank

4 GichuguHousing

1 2,938,811 4,898,018 1993 Co-opBank

5 UnityHousing

12 4,080,000 6,800,000 1996 Co-opBank

6 KibirigwiFarmersCo-operative

1 1,088,220 3,627,400 1995 Co-opBank

Total 129 22,085,582 60,443,432

Source: NACHU records

1.5.3 Micro-Finance Agencies in Kenya

GeneralThe Kenyan Micro-finance industry is one of the oldest and most established inAfrica (Mugwanga 1999). Initially mainly supported by Church-based institutionslike the National Council of Churches of Kenya (NCCK) and other smaller church-based NGOs, the programmes were ad hoc and were done as additions to othersocial outreach programmes. In the 1980s, two other specialised organisationsi.e. Kenya Rural Enterprise Fund (K-REP) and the Kenya Women Finance Trust(KWFT) began operating. The organisations were heavily subsidised then andused the integrated (credit and training) approach to assist micro-enterprises. K-REP had limited loan portfolio but focused more on lending funds provided byUSAID and other donors to smaller organisations like NCCK, KWFT and Tototoamong others.

By the early 1990s, interest and knowledge about the micro-finance industry hadgrown substantially and the approach to the industry began to become morefocused and sustainability-oriented. The “minimalist” Grameen approach wasadopted by most MFIs, and other ancillary activities like training were eitherstopped or spanned off into separate programmes. A few specialised product-based institutions began to emerge in the sector, as many church-based


organisations died out or collapsed owing to a lack of funding. The mostprominent institutions that emerged were K-REP, KWFT, PRIDE, Faulu and,increasingly, other institutions like NCCK and CARE-WEDO. All theseinstitutions continue to be reliant on donor funding, although K-REP has nowbeen licensed as a bank and is scheduled to operate as a commercial institution.The focus of these institutions has gradually changed from the emphasis on thevery poor to the enterprise poor, as the demands on these institutions to becomefinancially sustainable has increased.

A number of studies (MicroSave Africa: 1999, T. F. Express Ltd: 1997, Gemini1994) so far carried out in Kenya suggest that poor people have limited or noaccess to formal financial services. The Gemini study, for example, found that90% of micro and small enterprises in Kenya have never received credit. Since45% of the Kenya’s population live at or below the poverty line, this implies that asignificant proportion of the population do not have access to formal financialservices. They rely for financial support largely on mechanisms such as ‘merry-go-rounds’, family and friends at the lower end, and NGOs, church groups andsavings and credit co-operatives at the upper end. Except possibly for the KenyaPost Office Savings Bank, most banks in Kenya do not target the poor as theirclientele. NGOs have made efforts to act as intermediaries but so far theiroutreach is limited to densely populated urban and rural areas.10

As a further indication of limited penetration of credit services, out of the tenpoorest districts in Kenya (Marsabit, Samburu, Isiolo, Makueni, Turkana, TanaRiver, Machakos, Mandera, Kilifi and Embu) the leading MFIs have a presence inonly four, i.e. Marsabit (K-REP), Machakos (K-REP), Kilifi (KWFT, NCCK) andEmbu (K-REP, KWFT, NCCK).11 In some districts like Isiolo, Samburu andMakueni, other organisations like Action Aid and World Vision provideassistance. Annex III provides a brief on the two main MFIs in Kenya, includingtheir loan terms and financial performance

b) Savings ServicesMicro-finance institutions in Kenya are all NGOs. Although almost all have in-house savings programmes, they are not by law allowed to accept savings frommembers of the public. The savings activities that are undertaken are primarilyintended to strengthen their positions as lenders within their closed membership.They therefore consider savings important to ascertain a borrower’s character(borrowers often save for 7-11 weeks before receiving a loan) and/or a collateralfor the loan extended. Regular compulsory savings monetise the value of groupguarantees and gradually enhance the incentive to repay the loan while highersavings mean that the institution can disburse larger loans in future. Table 4gives the relative positions of two micro-credit institutions.

Table 4 Savings as a percentage of loans in Micro-finance Institutions

Institution Savings as a percentage of loanoutstanding

Faulu 64.9Kenya Women FinanceTrust (KWFT)

66.2

10 Dropouts amongst Kenyans Micro-finance Institutions, a report produced by MicroSave Africa,June 1999.11 Republic of Kenya, Office of the President, Poverty in Kenya 1997.


Kenya Rural EnterpriseFund (K-REP)

32.1

CARE-WEDCO 38.9

Source: Use and Impact of Savings Services in Kenya, By H. Mugwanga, 1999.

Although Micro-credit institutions are not mandated to accept savings frommembers of the public, their activities have stimulated savings services amongtheir general membership, which have become available to clients through theirindividual and group accounts. Unfortunately, very poor people are excludedfrom such indirect benefits, because they are not clients of the institutions.

The gender composition of micro-credit institutions’ clients is heavily tiltedtowards women. This is because KWFT targets only women and WEDCO isworking mostly with women, while PRIDE, K-REP and NCCK report majorityfemale clients.

While operating as an NGO, K-REP discovered that beyond a certain level thereare structural and legal frustrations that hinder the effective delivery of services tothe target markets of micro-finance institutions. The newly registered K-REPBank will operate within the legal framework governing the banking institutions inKenya. It will rely on the group-based lending approach, which has been widelyused globally especially in informal financial operations and popularised by theGrameen Bank, for a significant portion of its credit operations. On a positivenote, the Central Bank has already expressed a willingness to collaborate withMFIs to develop a regulatory framework that will ensure the soundness andsecurity of the micro-finance sector. The onus remains on the industrypractitioners to define the MFIs that could be considered under the CentralBank’s regulatory authority. The Central Bank has no resources to regulate non-deposit taking financial institutions.

c) Kenya Rural Enterprise ProgrammeThe Kenya Rural Enterprise Programme (K-REP) was established in 1984 as aproject of the US-based Private Voluntary Organisation (PVO) World EducationInc. It was then an intermediary organisation providing a link between USAIDand Kenyan organisations with activities to promote small and micro enterprises.The primary objective of K-REP at the time was to channel financial andtechnical assistance, as well as training, to local NGOs wishing to start or expandcredit programmes for small micro-enterprises development. By 1989, it hadprovided support to twelve NGOs, all of which were operating welfareprogrammes. The assistance was intended to help them expand their individualrevolving loan funds for on-lending to entrepreneurs at subsidised interest ratesof 12-14%. An additional grant was provided to cover operational andinstitutional building costs.

Integrated approach to lending was used where client training and post-loancounselling was provided. This approach was, however, abandoned as it led tolow disbursement rates and high dependency on donor funds. In 1989, K-REPselected four NGOs to work with on a new group lending approach. Thisincluded the Council for International Development, Pride, Tototo HomeIndustries, National Council of Churches of Kenya (NCCK) and PCEA ChogoriaHospital. Loans were advanced by K-REP to NGOs at subsidised rates of 7%over a period of three years. They were subsequently to extend loans to theirclients at market interest rates.


After three years of operation, K-REP had made over 10,000 loans amounting toKSh 70 million. The repayment rate had grown up to 97%. In addition, theproject had mobilised substantial deposits in savings and the loan re-flows werecapable of covering the direct costs of operations. In 1993, K-REP wasregistered as an NGO under the NGO Registration Act 1992 to promote KenyanNGOs, provide training and technical assistance to help build institutionalcapacity.

The progress in the various areas of operation provided the necessary indicatoron the way forward for K-REP in the implementation of its own lendingprogramme with the ultimate goal of establishing a self sustaining micro-financeinstitution. To date, K-REP implements two models of micro-credit deliverynamely: Juhudi and Chikola.

The Juhudi or group lending approach is based on Grameen Bank methodology.Group members (organised in groups of five) take responsibility for all aspects ofloan management including loan appraisal, approval, disbursements andrecovery. Credit is provided to individual entrepreneurs but guaranteed by thegroup. In the Chokola loan model, however, it is the group that borrows thenlends on to its identified members. The group in this case must raise 10% of theamount required. This model is susceptible to the dangers related to poorborrower selection and possible diversion of funds. K-REP still continues withthis project, although K-REP Bank was finally registered in March 1999. AnnexIII provides details of K-REP’s current lending terms.

d) Kenya Women Finance TrustThe Kenya Women Finance Trust (KWFT) was founded in 1981 as an affiliate ofWorld Women Banking, with the objective of helping Kenyan women participatein the economic mainstream through credit and training. At the initial stages itdisbursed loans to individual and groups and also provided training. From 30borrowers in 1992 receiving a total of KSh 150,000 the fund grew to 3,460borrowers with a total loan portfolio of KSh 33,984,000 in 1995.12 The mainservices are group savings, loans, loan guarantees, client counselling andtraining. Apart from the two offices in Nairobi, KWFT maintains branch offices inKilifi, Karatina and Kwale.

KWFT serves only women. Although it started operations in the early 1980s withgrants from donors, this support dwindled in the latter part of the decade becauseof poor performance. In the 1990s, the donor confidence had been regained,and currently KWFT collaborates with other similar micro-finance institution andalso with commercial banks like Barclays Bank of Kenya. Its main source offunds had been members’ contributions, K-REP, Barclays Bank of Kenya,Women World Banking, UNDP, the Ford Foundation and the International Fundfor Agricultural Development (IFAD).

KWFT later adopted a group lending approach similar to the one implemented byK-REP. The Biashara credit scheme follows the Grameen bank approach, butmodified to suite the Kenyan situation. The Uaminifu scheme, the secondproduct offered, provides credits to already existing groups. The groups thenlend money they receive from KWFT on to their members. Through acollaborative arrangement with Barclays Bank of Kenya, the Fund facilitates

12 Washington K. Kiiru and Glenn D. Pederson: Kenya Women Finance Trust, December 1997


larger loans to women by providing a partial guarantee for the loan. The clientprovides collateral to guarantee the balance.

KWFT’s loan performance has done well over the years, with an averagerepayment of 97% between 1993-1996. The lesson leant is that successfullending requires good management skills, qualified staff, an effective informationsystem and a continous effort to train personnel and upgrade the managementsystem. The relationship with formal financial institutions is important as a basisfor local mobilisation of resources; the commercial banks will therefore remain animportant alliance. Since the lending is its core business, the Trust aims atkeeping its costs down while scaling up its lending. KWFT has realised thatsmall loans are expensive to administer, hence its survival will depend on itsability to charge high interest rates, lend to more women and maintain highrepayment rates. In 1995, KWFT’s real interest rate was 28.3% p.a. incomparison to commercial banks’ rate of 19.7-28.3% p.a. Annex III providesdetails of KWFT current lending terms.

e) Smallholder Irrigation Development OrganisationMost micro-finance institutions in Kenya lend mainly for business-related incomegenerating activities. One institution, however, the Smallholder Irrigation SchemeDevelopment Organisation (SISDO), has also tried to lend for infrastructure ongravity-fed irrigation schemes. SISDO was founded in 1991 with funding supportfrom the Dutch Government to provide technical, financial and managementservices to smallholder farmers engaged in the production and marketing of highvalue irrigation cash crops. It currently implements four main loan programmes:i.e. loans for infrastructure of gravity fed irrigation schemes; loans for individualsin pump-fed irrigation systems; loans for farm inputs; and high grade milk zero-grazing programme.

Under the infrastructure loans, farmers organise themselves into Water UsersAssociations (groups of 50-500 households) at scheme levels. The groups arefurther broken down into groups of 10 - 30 farmers, with each group having itsown independent water supply. Members of each group guarantee each other’sloan. The amount approved as a loan is paid directly to the approved contractor.Farmers undertake personally and collectively to repay the loans. The schemeallows each farmer to irrigate at least one acre of land.

Farmers who cannot benefit from the above scheme are provided with loans forthe purchase of pumps and other equipment. Such loans are only given tosmallholders residing in a cluster and willing to secure each other’s loan. Loansare further secured by a chattel mortgage on equipment purchased. Loans forfarm input (seeds, fertilisers and farm chemicals) target mainly women andprovide loans for the procurement of agricultural inputs for irrigated crops.Farmers organise themselves into groups and collectively contribute to a loaninsurance fund. In the grade milk zero-grazing programme, the farmer has tocontribute 15% of the loan approved to the group account in a bank selected bySISDO to be used as security fund against all future loan transactions. Thescheme is managed and implemented using the Grameen model.

1.5.4 Regulations and Procedures regarding Foreign Loans and Grants

Kenya’s foreign exchange market was liberalised fully in 1993. Since then,registered organisations are permitted to hold foreign currency accounts abroador with registered banks in Kenya and may use the balances in these accounts to


pay operating expenses and business-related expenses (including imports, debtservice, and dividends). They are not required to notify the Central Bank of anysuch transactions. Payments to residents or institutions in other countries maybe made in KSh to the credit of a foreign account in Kenya or in any foreigncurrency. Receipts may also be obtained in KSh from a foreign account in Kenyaor in any marketable foreign currency. However, if an institution wants torepatriate more than US$ 500,000 at any one time, then it has to notify theCentral Bank of the transaction explaining the reason why it needs to repatriatesuch a large amount. No restriction is placed on the level of grant receivable byany local organisation.

The Exchange Control Unit at Trade Finance is responsible for processing allforeign exchange related transactions where necessary. Although no procedurehas been prescribed by the Central Bank of Kenya (CBK) for Commercial Banksto guide their customers, the CBK has advised commercial banks to follow thefollowing procedure when approached:• all loan agreements entered into by the customer and the lender must be

forwarded for scrutiny/approval at the Exchange Control Unit at TradeFinance;

• the loan amount should be disbursed by the lender only after the LoanAgreement has been signed/approved by Trade Finance;

• a request from customers for remittance(s) of instalments plus interest underthe Loan Agreement registered with the CBK must be made through thebranches for scrutiny/approval by the Exchange Control Unit in TradeFinance, prior to effecting the remittance;

• a request for such remittance must be accompanied by supportingdocumentation i.e. demand notes from lender, receipt evidencing payment ofwithholding tax by the borrower, authority to debit account from customer, etc.

Investment of foreign funds in Kenya is generally not restricted but, to ensureeventual repatriation, it is necessary to obtain a “certificate of approvedenterprise” for the investment. Foreign and domestic investments in specifiedtypes of production require approval. Foreign investors may repatriate the valueof the original equity investment, denominated in the currency in which it wasoriginally made, and the value of any profits that were reinvested anddenominated in the currency of the original investment.

Local borrowing by non-resident-owned or controlled companies does not requirean approval. The Government does not guarantee any borrowing by the privatesector nor does it require such borrowing to be referred to the Central Bank ofKenya.

1.6 The Co-operative Housing in Kenya1.6.1 General

The Kenyan co-operative movement has, since independence in 1963, played amajor role in the country’s economy. The number of registered co-operatives hasgrown from 996 in 1975 with a membership of 664,000 and a turnover of KSh691 million to 5,129 co-operatives in 1995 with 2.7 million members. Themovement, with its KSh 20 billion (US$ 30 million) annual turnover, covers some50% of Kenya’s Gross National Product.13 It had been projected in 1995, that by

13 Data from KUSCCO Savings and Credit Cooperative Society


the year 2000, the number of active co-operative societies would more thandouble and thereby raise the number of Kenyans who directly or indirectlydepend on co-operatives for their livelihood to about 20 million people.

Sessional Paper no. 6 of 1997, ‘Co-operatives in a Liberalised EconomicEnvironment’, and the revised Co-operative Societies Act 1998 provide the policyand regulatory framework for the operation of co-operative societies. Therevision of the Act in 1998 greatly reduced the role of the government andincreased the freedom and responsibilities of the co-operative members.

In the past years, a lot of changes have taken place within the co-operativemovement as well as the social and economic environment in which the co-operatives operate. Initially, marketing of agricultural produce and supplying offarm inputs were the principal co-operative activities. However, during the past15 years, the movement has expanded to include savings and credit, housingand consumer co-operative activities. Some of the activities like savings andcredit have been subject to rapid growth while others like housing and consumerco-operative activities have shown very slow growth owing to a number ofconstraints.

The housing co-operative movement in Kenya is relatively young. Currentlythere are about 424 registered societies in this sector. Out of this only a handfulhave managed to take off, owing to various constraints such as lack of capital,unavailability of land, lack of technical, financial and administrative skills amongsociety members, lack of short and long term financing for the projects, highinterest rates, commitments and other fees charged by the financial institutions.14

The only co-operative sector with a significant bearing on housing co-operativesis savings and credit co-operatives, known in Kenya as SACCOs. SACCOsoperate under the Co-operative Societies Act and Rules and are guided by theirbyelaws, which contain details of their management. All are based on commonbond i.e. employees of one organisation in government, co-operative or privatesector. A SACCO member is required to make regular monthly contributions inthe form of shares, for a minimum period of six months before they can beallowed to borrow from the co-operative. After that, a member can borrow up tofour times (depending on the SACCO’s cash flow position) of what they havesaved at a maximum interest rate of 12% per annum.

The successful operation of SACCOs has been attributed to the check-offsystem, where employers are asked to make deductions for savings and loanrepayment from salaries of SACCO members and remit them directly to theSACCO(s). This system has reduced the risk of defaults and of fraud,particularly since SACCO officials are employees of the same institutions.However, while many SACCOs operate successfully, a number of employers,including the government, collect savings and repayments but do not remit themto the SACCOs.

SACCOs have three types of loans: school fees loans, emergency anddevelopment loans. Development loans, which comprise the largest category ofloans, are used mainly for land purchase, deposit for house purchase (with thelarger amount for longer term financing being provided by a mortgage institution)

14 The Contribution of Cooperatives to Shelter development in Kenya: A report done forUNCHS by Graham Alder and Paul Munene


and incremental building with a new loan being taken as soon as the previousone is paid off.

There is no institution in Kenya from which an individual can borrow money forhousing at 12%, except from SACCOs. Banks charge around 28% p.a. for amaximum of three years and long term financiers are currently offering loans at22-26% p.a. over a maximum period of 15 years. This has of courseconsiderable impact on affordability and loan repayments.

Although many housing co-operatives, particularly worker-based, originated assubsidiaries of SACCOs, as it was legally important that the two activities besegregated, several SACCOs have attempted to undertake housing developmentdirectly on behalf of their members. One such SACCO is Harambee Co-operative Society. Harambee Co-operative is the largest SACCO in the country,with membership drawn from the Office of the President, the ProvincialAdministration and the Armed Forces, has been able to put up a number ofmiddle and high income housing projects for purchase by its members in anumber of towns in Kenya including Nairobi. Members of the housing co-operatives who still belong to SACCOs have been able to borrow funds fromSACCOs and use them for housing.

1.6.2 National Co-operative Housing Union

The National Co-operative Housing Union (NACHU) was founded in 1978 tobecome an apex organisation for all primary housing co-operatives. NACHU wasformally registered in 1979 as a National Technical Services Organisation tooperate on a non-profit basis in the provision of services such as promotion,sponsorship, planning and implementation of housing co-operative projects.NACHU became operational in 1983 and had its first democratically-electedboard in 1986. To date NACHU has been able to assist over 606 co-operativesocieties members acquire better housing.

Status of Housing Co-operatives Affiliated to NACHUThe model by-eaws made for primary housing co-operative societies includes asone of the objectives:“To provide for its members a decent living accommodation at a fair andreasonable price together with such ancillary services as roads, drainage, waterand light and together with facilities for physical and cultural recreation and allsuch matters as are usual, customary and desirous for building estates, blocks offlats or single dwellings.”

At formation, the co-operative must decide the type of tenure it will adopt. Theoptions are:• limited objective: normally formed to jointly acquire land and in some cases to

construct dwelling;• multiple mortgage: where the plot bought by the co-operative is sub-divided to

allow each member to hold individual title and therefore access individualhouse mortgages from a financial institution;

• continuing co-operative: normally acquires property jointly and holds it inperpetuity. Members then benefit from annual dividends derived from rentalincome and other services.


The limited objective type of co-operatives are the most common, as thoseaiming to build houses for individual members are unable to do so owing to thehigh cost of infrastructure and high interest rates on loans.

Data from the Ministry of Co-operative indicates that out of 424 registeredhousing co-operatives, 145 were affiliated to NACHU as at November 30, 1999.The total membership is estimated at 100,000. All the 145 affiliate co-operativeshave undeveloped land or rental property, 33 co-operatives have undertakenhouse construction or rehabilitation. A total of 606 units had beenbuilt/rehabilitated by end of November 1999. Housing co-operatives in Kenya arealmost wholly limited to urban areas, with Nairobi having 56 out of the 145affiliated to NACHU as indicated in Table 5.

Table 5 Distribution of NACHU Affiliates by ProvinceProvince No. of Affiliates

Nairobi 56Central 24Rift Valley 19Coast 17Eastern 15Nyanza 8Western 6North Eastern 0Total 145

Source: NACHU Records: November 30, 1999

Table 6 below provides details of turnover and share capital among housing co-operatives up to 1993. Subsequent data were not available.

Table 6Housing Co-operative: Turnover and Share Capital

Year Turnover (KSh‘000)

Share Capital (KSh‘000)

1991 29 97,5661992 31 128,1961993 24 52,212

Source: Ministry of Co-operative Development.

Turnover in housing co-operatives has to be viewed differently from those ofsavings and credit co-operatives, because housing co-operatives have nosurplus, as all contributions or shares go into investments. Once investments aremade in land and construction, the returns are difficult to measure from the pointof view of the co-operative. This is particularly so if the individual member takeson a mortgage where houses are built or simply tied up in case of undevelopedland.

Table 6 shows a decline in share capital in 1992/1993. This was due to a majordevaluation of the KSh in 1993 that led to a steep rise in construction costs andinterest rates. This effectively froze many co-operative projects.


1.6.3 Sources of Funds for Housing Co-operative Projects

The main sources of finance for the housing co-operative projects have beenmembers’ savings, loans from savings and credit co-operative societies andloans from banks and financial institutions. Whereas savings are supposed to becontributed regularly on a monthly basis, many co-operative members wouldprefer to wait to make a lump sum contribution (often from members’ savings andcredit group or other sources), when a specific project requiring a specific amountfrom each member has been identified and approved by the members.

In Savings and Credit Societies, loans are available to members at 12% p.a.interest rate over a maximum period of four years. Construction loans (bridgingloans) or loans for land purchase are available from the Co-operative Bank at 2%below market rate (currently lying between 26-28% p.a.) to co-operativemembers on production of acceptable collateral security, normally in the form oftitle deeds or share certificates. The maximum repayment period is three years.Before the review of the Co-operative Act 1998, co-operatives were required bylaw to save with the Co-operative Bank. This has since changed. Most loansobtained from savings and credit co-operative societies are used to purchaseland or build houses in urban or rural areas, to pay a deposit for an urban house,to meet members’ children school fees or other family consumption needs.

Table 7 shows the level of savings that those applying for rehabilitation loanshave to raise. Often these deposits are borrowed from savings and credit co-operatives and deposited into housing. The period between the requirement ofdeposit and the start of the rehabilitation loan repayment is therefore critical toborrowers. NACHU has provided a six months grace period before the start ofloan repayments.

Table 7: Housing Projects Managed Directly by NACHU

Pro

ject

Nam

e

No

. o

f h

ou

sin

gu

nit

s

So

ciet

yco

ntr

ibu

tio

n(K

SH

)

Lo

an a

mo

un

ts

Wh

en c

om

ple

ted

Fin

anci

er

A Rehabilitation Projects (completed)1 Naivasha

Site46 180,000 1,800,000 1993 Ford

Found.2 Soweto

Kayole32 162,000 1,620,000 1993 Ford

Found.3 Embakasi 18 135,000 1,356,000 1993 “4 Marura 8 53,600 536,000 1993 “

5 Huruma 24 142,500 1,425,000 1993 “6 Freretown 32 166,270 1,662,700 1992 “7 Mgunda 13 72,250 722,500 1998 “8 Mkuyuni 4 28,000 280,000 1998 “9 Bomani 9 49,500 495,000 1998 “

10 Salaita 3 12,250 122,500 1998 “11 Uvumilivu 14 98,000 980,000 1998 “12 Leo 13 96,500 965,000 1998 “13 Ziwo 25 147,000 1,470,000 1996 NACHU

Sub-Total 241 1,343,470 13,434,700B New Rehabilitation Projects (Repayments to in start February 2000)14 Kwa Rhoda 12 252,000 2,520,000 1999 Ford


Found.15 Soweto

Kayole II13 156,000 1,560,000 1999 “

16 KilifiMuungano

9 100,500 1,005,000 1999 “

17 Uvumilivu 26 151,500 1,515,000 1999 “18 Jasho 21 244,000 2,440,000 1999 “19 Mgunda 1 8,000 80,000 1999 “20 Mkuyuni 1 12,000 120,000 1999 “21 Bomani 6 48,500 485,000 1999 “22 Salaita 2 24,000 240,000 1999 “

Sub-total 91 996,500 9,965,000C Group Loans23 Voi Women 15 Materials 338,000 1997 ZeroCap24 Kariobangi 118 1,264,700 12,647,000 1994 USAID25 Itambya 60,000 600,000 1999 NACHU26 Shelter

Women25,370 253,700 1999 NACHU

27 Kiriti Women 12 15,000,000 On-going

Selffinancing

Sub-Total 145 16,350,070 13,838,700Gross Total 477 18,690,040 37,238,400

Source: NACHU Records

1.6.4 External Support to Housing Co-operatives

Since its inception in 1983, NACHU has received financial and technical supportfrom a number of donors which include the International Co-operativeDevelopment Association, Co-operative Housing Foundation of USA,USAID/GOK, Africa American Labour Centre, Ford Foundation, Roof TopsCanada and Homeless International among others. This support has been usedto purchase project vehicles and equipment, develop and print training materials,capacity building, institutional support, networking and exchange visits, betweenNACHU and other partners in Canada, Zimbabwe, South Africa and Uganda, aswell as the establishment of a housing fund for housing rehabilitation/landpurchase and support for implementation of individual co-operative projects.

Housing co-operatives receive no direct financial support from outside countriesbut have benefited from support given through NACHU. There are 22 housingco-operatives running house rehabilitation projects with loans from NACHU. Thisfunding was obtained from the Ford Foundation at no interest rate. The loanfund, which is specifically for such projects, currently stands at KSh 20 million.Loans from the fund are generally small, ranging between KSh 120,000-140,000at interest rates of 19% p.a. over 48 months.

The main constraint has been obtaining finance affordable to the members. Highinterest rates make many projects unaffordable, especially those designed tomeet conventional local authority byelaws. The major housing financeinstitutions are unwilling to provide block co-operative mortgage loans, preferringto lend to individuals and the private sector. Even Co-operative MarchantFinance, the long-term lending arm of the Co-operative Bank, will only lend onthe security of individual title, not on a joint title. Housing finance fromconventional institutions is not available to co-operative building using the new‘Grade 3’ building byelaws, which allow the use of more affordable materials andstandards. Annex I provide an analysis of the various internal and externalfactors that have faced NACHU since 1983 when it was founded.


1.6.5 Kenya Union of Savings and Credit Co-operative Society

Kenya Union of Savings and Credit Co-operative Societies (KUSCCO) wasformed in 1973 as an association of savings and credit co-operative societiesinitially based in the urban centres. KUSCCO’s main objective is to promote andco-ordinate the interest of savings and credit societies throughout the country.Original functions were to provide accounting services, education and training,technical assistance and other needed services to the co-operative savings andcredit members, such as the provision of office stationery and accountingdocumentation. KUSCCO has branch offices in all Kenya’s eight provinces.

In 1988, after consultation with NACHU, KUSCCO established a housing fundknown as the KUSCCO Housing Fund. The fund was formed with the objectiveof meeting the demand for long term finance from its credit union members. Thishas been made possible because of the increasing liquidity in the credit unionsystem and because liberalisation has given co-operative financial institutions(SACCOs) greater scope to attract deposits. The fund is centrally managed, andseparate from the operations of the individual SACCO and other KUSCCOoperations. The SACCO members have requested that the organisation of theirindividual housing co-operatives and related construction activities be undertakenby NACHU. The Fund is still to start operation.

NACHU has been considering establishing a similar fund to provide loansfacilities to housing co-operatives for the rehabilitation and erection of newbuildings. NACHU has already developed a prospectus for discussion with thedonors, who are being requested to put in initial capital. NACHU hopes, inaddition to lending the funds to co-operative members, to be able to generateincome to support its own activities and reduce its dependency on donors.However, administrative issues related to control and management of the fund isstill to be sorted out. It is also not clear whether it is necessary to have bothKUSCCO and NACHU Housing Funds. KUSCCO has the means to mobiliseliquid funds from savings and credit co-operative societies, while NACHU has thetechnical know how to develop housing projects. Although a decision as to thechoice of fund has not been made, a join approach would be the best alternative.

1.6.6 Co-operative Housing as a Model of Shelter Delivery

Co-operatives are significant in the informal settlements in improvinginfrastructure and generating income. The Maji and Ufanisi group in Kibera,which manages water and the recycling activities undertaken by Muroto group inMathare, illustrate this. Generally there are numerous NGOs, CBOs and co-operatives in each settlement, building conventional housing using the finance toacquire land and build housing. Many co-operatives tend to give up if they areunable to source affordable finance.

NACHU was formed to support housing co-operatives. However, NACHU facessevere financial constraints. Co-operative members do not make annualsubscriptions to NACHU as they do with savings and credit societies. NACHUwas to charge a fee for services undertaken in building conventional houses;however, finance to support such projects has been difficult to come by.Although NACHU has been successful with rehabilitation projects for the poorergroups, these projects have been funded by the Ford Foundation grant and lentout at below market rates. Given the small size of the individual loans, NACHU isunable to generate sufficient funds from such initiatives to sustain its work. It hadbeen suggested that NACHU consider cross-subsidising the higher and lower


income groups in terms of charging for its services, but this is only possible if itcan locate funds to develop the high income projects. In the meantime, NACHUremains reliant on donors, which have supported all its past activities includingannual recurrent budgets.

The most promising initiative is the use of internal co-operative savings throughthe savings and credit movement. As noted earlier, SACCO members use shortterms loans from SACCOs to invest in shelter. The KUSCCO Housing Fundseeks to mobilise excess liquidity in the SACCO system to be used as housingcredit. The loans to be given out range from three to ten years at an interest rateof 1.5% per month.15

NACHU and KUSCCO should discuss the possibility of working together topromote one fund for housing, as this will provide greater access to domesticsavings through the co-operative movement and will utilise KUSCCO’s financialstrength, as well as NACHU’s expertise both in implementing housing projectsand in operating the housing loan programme. KUSCCO/NACHU could alsoexplore the possibility of using its funds to guarantee loans from other housingfinance institutions or even having external donors guarantee some of theprojects financed by the fund.

1.6.7 NACHU Rehabilitation Fund

The NACHU Rehabilitation Fund was first experimented in 1983 while workingwith two housing co-operatives in Mombasa (Kisauni and Freretown), to assistthem acquire land on which they had been squatting and later to upgrade theindividual members’ houses. The Ford Foundation funded the two projects.

In 1991, the Ford Foundation approved a loan of US$ 50,000 to NACHU forlending on to the housing co-operative societies. Later in 1996, the amount wasconverted to a revolving loan fund for housing rehabilitation as part of NACHU’shousing programme. All loans are lent on at below market rates (19% comparedto 28% in the market) and are restricted to persons who are unable to obtaincommercial financing from conventional sources.

To qualify for the loan, the co-operative must have been affiliated to NACHU forat least six months at the time of application. Members must be low-income andable to obtain three guarantors, provide loan security (title deed, letter ofallocation, shares, power of attorney) and 10% deposit. The loans are extendedover a maximum period of 48 months. The current maximum loan size is KSh140,000. The loan application process involves the following seven steps:• an assessment of the socio-economic profile of the co-operative members,

their housing needs and status of settlements;• selected members going through an education process, which includes

defining member/co-operative responsibilities in the planned project; onlythose who attend the education sessions are considered for funding;

• those who qualify for funding being asked to raise the required 10% deposit; ifa co-operative does not have a bank account, they are asked to open one; thedeposits can be made individually in a NACHU rehabilitation account orcollectively through the co-operative;

15 Contribution of Co-operatives to Shelter Development in Kenya: By Graham Alder and PaulMunene.


• selected applicants being asked to complete loan application forms and otherloan agreement documents for onward transmission to their ManagementCommittee;

• the application forms, together with the other documents (guarantee form,power of attorney, loan agreement etc), are forwarded to NACHU, who mayvisit the project to collect any details that may have been overlooked;

• loan applications being reviewed by NACHU’s Loans Committee forapproval, those approved being sent to the Ministry of Co-operativeDevelopment for final authority (although ministerial approval is no longernecessary since the review of the Co-operative Societies Act in 1998);

• loans being disbursed to members individually in two instalments, with thesecond instalment being released only if the first is used in accordance withthe agreed loan terms. A specialist house inspection is carried out before andafter completion to ensure quality construction.

A loan management letter outlines the procedure to be followed in collectingarrears and bad loans. NACHU can enforce the security offered by the co-operative using the power of attorney to manage the property until full recovery ofloan, or by invoking the Co-operative Societies Act and re-allocating the house toanother co-operative member.

As at November 1999, a total of KSh 42,715,123 had been disbursed out ofwhich KSh 23,399,700 financed 332 rehabilitation loans, KSh 13,838,700 funded145 units under the group loan scheme and KSh 5,476,723 financed tworesettlement projects. The loan size has averaged KSh 40,000 to KSh 85,000.Table 8 below indicates the size distribution of the first six rehabilitation loansdisbursed by NACHU.

Table 8: Size Distribution of Rehabilitation Loans by the first six co-operatives.

Co-operative No. ofloans

AmountDisbursed

(KSh)

Average loansize (KSh)

1 Marura 8 536,000 67,0002. Naivasha 46 1,800,000 39,1303. Soweto Kayole 32 1,620,000 50,6254. Embakasi 18 1,356,000 75,3335. Huruma 24 1,425,000 59,3756. Freretown 32 1,662,700 51,959


The rehabilitation loans have so far been used for repairs, painting, extensions,cementing, windows, adding stone structure, replacing mud with timber/tinstructure or simply building a new stone house. Economically, NACHU has beenable to add 332 housing units to the market under this project. Co-operativemembers have also managed to increase the rent value of their properties byadding an extra room or improving existing facilities.

Repayment rates among rehabilitation members averaged 70% in November1999 (Table 9). An analysis of repayment for the Bellevue project, for example,gave an average repayment of 71%(Table 11). The success of the rehabilitationproject is seemingly not matched by good loan repayment. The poorperformance has been attributed to irregular or inadequate income for the


borrower, poor selection of borrowers by the co-operative society, lack of closemonitoring and supervision of loans by NACHU and the society, or simply a lossof interest in the project by the members. A survey of NACHU loan defaultsundertaken by K-REP in 1995 indicated that the majority (54.7%) of co-operativemembers depended on rent and business for their incomes. Leadership styleand quality also account for differences in co-operative performance. HurumaCo-operative, for example, has good leadership and thus good repaymentrecord. Bellevue has had leadership problems in the last two years, greatlyaffecting its performance.

Table 9: NACHU Rehabilitation Loan Performance as at November 30, 1999Project Amount

ExpectedAmount

ReceivedArrears Repayment

Rate (%)SowetoKayole

1,970,976 1,738,962 232,014 88

Marura 880,126 862,724 17,402 98Embakasi 1,844,642 1,365,556 479,086 74Huruma 2,209,596 2,098,853 110,743 95NaivashaSite

2,993,254 1,467,531 1,525,723 49

Freretown 1,996,924 1,472,426 524,498 74Ziwo 1,998,629 558,581 1,440,048 28Uvumilivu 582,052 530,260 51,792 91Mgunda 344,154 211,678 132,476 62Bomani 289,788 250,340 39,448 86Salaita 72,447 66,247 6,200 91Mkuyuni 162,887 113,919 48,968 70Leo 442,605 282,854 159,751 64Total 15,788,080 11,019,931 4,768,149 70


Resettlement FundAlthough housing co-operative members have been responsible for identifyingtheir own individual land, many are often unable to pay the lump sum needed toacquire the land. Homeless International supported NACHU to set up a revolvingloan fund for land acquisition by co-operatives. The fund allows NACHU to payoff the land, then transfer the equivalent as a loan to the co-operative. So far,one co-operative society, Akwana Housing Co-operative Society has benefitedfrom this fund. The terms of the loan include a deposit of 10% of the total loanwith NACHU. Interest of 15% p.a. is charged over 48 months. The HomelessInternational Resettlement Fund had a cash balance of KSh 4,645,055.25 as at30 November 1999. Akwana has since completed repayment of its loan.

With partial support from Goal International, NACHU also managed to resettlemembers of Bellevue Housing Co-operative in their current location. Table 10below shows the amount of loan extended to each co-operative in theresettlement plan.

Table 10: NACHU Resettlement Loans

Co-operative Deposit bymembers

Loanamount

Whencompleted

Financier


(KSh)Akwana 2,577,795 1995 Homeless

InternationalBellevue 420,000 2,898,928 1997 NACHU/

GoalInternational


1.6.8 NACHU Institutional Capacity

The ability of an organisation to translate its vision into action depends upon theavailability, organisation and use of resources. NACHU is a strategicorganisation with a good reputation in housing development in Kenya. To date, ithas directly financed or supervised housing construction on behalf of 35 co-operative societies.

NACHU has an elected Board of nine people elected by housing co-operativeson a regional basis. The Board has clearly defined objectives and meetsregularly to review the operations of the organisation. A possible strength of theboard is that it represents the interest of their housing co-operatives andtherefore has an incentive to push for programmes relevant to the members.Women are well represented in the Board.

Currently, NACHU has a total of 14 staff organised into three key areas ofservices i.e. Projects, Community Education and Finance. The General Manageris in charge of day to day management and direction of activities. The formerGeneral Manager resigned in November 1999 and a new Manager has takenover in an acting capacity. There is good teamwork among staff, although theyagree that performance of rehabilitation projects could be improved by havingstaff with experience in lending or housing finance to follow up rehabilitationloans.

There is a good management information system for monitoring and keepingrecords of co-operatives and rehabilitation loans. Records of current repaymentscan be obtained upon request. NACHU has not, however, implemented theproject-based accounting system as earlier recommended by Price Waterhouseconsultants (1990). There are therefore no project-desegregated data tofacilitate analysis of individual project viability. NACHU is currently subsidisingthe management cost of the rehabilitation loans and introduction of project-basedaccounting will help establish the actual level of subsidy, including the minimumstaffing level required to manage the projects effectively.

NACHU depends on grants to finance its operations. Between 1993 and 1998,grant income accounted for just over 90% of its annual income. Although there ispotential for NACHU to be sustainable through improved repayment rates onrehabilitation loans and the establishment of a Housing Loan Fund, the continuedhigh dependency on grants threatens its sustainability.

1.6.9 Steps to Accessing Forex Loans

The following chart shows the steps that NACHU needs to go through in order tobenefit from the housing guarantee scheme. The process assumes that fundsare made available for lending to low cost housing co-operatives/CBOs from a


local financier or an established housing fund. An external financier thenguarantees the amount borrowed.


2. BELLEVUE HOUSING PROJECT

2.1 Project Description and OverviewThe Bellevue Housing Co-operative was established in 1994 among slumdwellers located near Wilson Airport in Nairobi. The members’ objective was toimprove their living conditions. With financial assistance from NACHU and GoalInternational, the co-operative was able to purchase a piece of land in the town ofMavoko situated about 30 km from Nairobi. NACHU and the MavokoMunicipality provided technical advice on community aspects and onconstruction. By 1998, 139 households had been resettled out of a totalmembership of 160. The new settlement includes space for recreation and anursery school. Women are fully involved in the management of the co-operative(as treasurer and secretary) and play an active role in the planning andimplementation of their project.

The Bellevue project has helped in illustrating the importance of partnershipbetween the community, the municipality, the government, NACHU and donors inthe resettlement of the urban poor. The community got together to save andraise funds to purchase a piece of land on which to settle after being separatelyevicted while squatting on different sites. After NACHU’s intervention, themunicipality provided a temporary settlement area while the community searchedfor an alternative site to move to. NACHU assisted in identifying land forsettlement and working with donors who provided the finance needed for lendingon to the co-operative.

The total cost of land was KSh 3,296,500 out of which members raised KSh420,000, Goal International provided KSh 1,198,140 and NACHU KSh 1,678,360all as loan repayable over 4 years at 15% interest. In total, each memberborrowed KSh 27,000 and makes a monthly repayment of KSh 567. Althoughthe community had reserved a space for construction of a nursery school, nonehas been built owing to lack of funds. There is no water on site and communitymembers have to walk two kilometres each day in search of water. The projectalso lacks toilet facilities. The area is rocky, making it difficult to dig pit latrines.NACHU recently managed to secure some grant funds and has assisted inconstructing a pit latrine on the nursery school site for use by the residents. Onefacility is, however, not adequate to serve 139 families.

Currently the co-operative faces a number of problems:a) Unemployment:Most of the members are petty hawkers/vendors, carpenters, masons or simplysubsistence farmers. They live in a new isolated area. The neighbours are richindividuals with nothing in common. The market for their products is limited tothe members themselves. This is very limiting and, as a result, a number ofbusinesses have since collapsed. A number of members, however, are able tosell their wares or food to the workers working in the adjacent industrial area.b) Poor loan performance:The loan performance as at 30 November 1999 showed the following position:

Table 11: Bellevue Loan Performance as at November 30, 1999No. of Members Loan status Percentage

18 Paid off their loans 1323 In arrears for up to 3 17


months69 In arrears of 4-14 months 5029 In arrears of over 14

months20

139 100


Only 30 members are currently up to date with their repayment. This has been avery disappointing situation for NACHU, given the amount of work and effort thathas brought the project to its current status. After deliberation with members, itwas realised that the management committee in office had failed in its duties. Ageneral meeting of all members was called and a new management committeeelected in July 1999. As at 30 November 1999 KSh 2,051,406 was expected outof which KSh 1,451,564 had been received, giving a repayment rate of 71%.This rate is, however, distorted by inclusion of prepayments by the 18 memberswho have paid off their loans. Effectively, the repayment rate should be 30%.

c) Management:Because of the history of their previous dependence on donors for relief food,some of the members in the previous management committee had beenmisinforming members that the NACHU loan extended to them was a grant whichdid not have to be repaid. During the last general meeting, NACHU invited GoalInternational to the meeting to clarify the position. After that, members agreed togive the loan defaulters up to 31 January 2000. Those over ten months inarrears by then will have their plots sold to other members who had not benefitedfrom the project.

Members who will have cleared their loans or are up to date with their repaymentby that date will be considered for rehabilitation loans. Many members are stillliving in plastic paper houses, although a few have managed to constructmud/timber/iron sheet houses. The maximum loan will be KSh 120,000 for atwo-roomed stone house. It is expected that members will opt for a smaller loan,as they will mainly use timber for walls and iron sheets for roofs or iron sheets forboth with a cement floor. Houses made of these materials are cheaper andeasier to rent out at KSh 500 per month. Those who can afford the rent for astone house will prefer to live somewhere other than Bellevue owing to a lack ofwater, toilet facilities and schools for their children.

Estimated Loan for 35 members KShEstimated cost of improving 35 houses (35x KSh 120,000) 4,200,000Technical Training and Administration by NACHU (20%) 840,000Sub-total 5,040,000Add: Cost of additional sanitation facilities 500,000Total 5,540,000

The repayment per month per member over 48 months, inclusive of interest at19%, will be KSh 3,886. This level of repayment is high, considering that theystill have to make repayment towards the land purchase. Discussions are stillongoing about the possibility of reducing the amount to be borrowed by eachindividual member.

Need for Water


Members currently fetch water 2 Km away at a cost of KSh 3 per 20-litre jerry canor can pay KSh 10 per jerry can when delivered on site by horse driven carts.The cost of water to the Council is KSh 50 per 200 litres. The neighbourhoodcommunities are connecting water to the adjacent plots at a total cost of KSh 1million. NACHU has negotiated for two of its members with adjacent plots –Akwana and Bellevue - to share KSh 300,000 to be able to access the water.This will enable members to have one water point on site. To assist in loanrepayment, the society intends to sell water to members and interestedneighbours as an income generating activity. No member will be allowed toconnect water to their individual plot until the water loan is paid in full.

2.2 Overview of Main StakeholdersThe main stakeholders in the Bellevue project are:a) 139 members of Bellevue Housing Co-operative SocietyA few of the co-operative members and some officials had created theimpression that the loan given for land acquisition will finally be written off andhad gone ahead to incite members not to remit payments to NACHU. All themembers of Bellevue housing were former squatters on government land. Someof them were victims of eviction and had been receiving material support fromcharity organisations and individuals. The few misdirected members thereforestill believe that they are poor and will not be forced to repay the loans. Fivemembers of the group have never made any repayments and have refused tomove to the current site for fear of losing free handouts if they change theirstatus.

All members of the co-operative are not in formal employment. The majority areself-employed in petty trading or casual unskilled work. Few work as skilledmasons and carpenters. Women are mainly hawkers. The average monthlyincome is about KSh 1500 – 4,000 per month.

Other than the share certificates that they hold as individuals, representing thenumber of shares bought in the housing co-operative, and the land title held inTrust by NACHU, Goal International and Bellevue Committee, the members haveno other tangible security to offer for any loan. The majority of members arealready over 50 years old (60%) and illiterate. Their current houses are made upof various categories and sizes ranging from plastic polythene papers, flattenedtins, mud and wattle, timber, corrugated iron sheets and quarry stones.

b) The Bellevue Co-operative SocietyThe Society has a weak technical and financial base, lacks managerial skills andhas had administrative problems at management committee level. A newmanagement committee was elected in July 1999 and hopes to streamline theoperation of the co-operative. NACHU is working with the managementcommittee to provide relevant additional training to members.

c) NACHU as the Union representing affiliated housing co-operativesand a lender to BellevueNACHU believes that the Bellevue problems can be sorted out and have giventhe defaulters up to 31 January 2000 to pay up, or lose membership and a sharein land allocation.


d) The Department of Co-operative Development which regulates theoperation of co-operatives in the country (registration, advisory, policyguideline).The recent amendment in the Co-operative Societies Act has reduced thepowers of the Commissioner of Co-operatives in the management of the co-operative societies, and increased the powers of the societies’ managementcommittees and membership. The only risk will arise if the committee is notworking as a team or lacks good leadership skills.

e) The Donors: Goal International and others that have provided fundsto NACHU to on-lend to Bellevue members.These rely on NACHU to recover the funds. Goal would probably like to see theloan repaid and the funds loaned to another co-operative/CBO. They demandsound financial management, transparency, tangible results and member-driveninitiatives with an emphasis on the disadvantaged and the poor.

f) The local authority, Mavoko County Council, that has to approveinfrastructure, house construction standards on Bellevue site, and alsoapprove business licences to allow members to operate businesses onsite.The issue of business licences has been of concern to a number of residents.Annual licence costs vary depending on the individual activity. Licences forkiosk, greengrocery, hawking and selling of second-hand clothes have a fee ofKSh 2000, hotel licences are KSh 2,800, bar licences are KSh 3,200 andbutchery licences are KSh 4,000 p.a. A number of women hawkers indicatedthat they are unable to raise the whole amount at once but can do so byinstalments. The inability of Mavoko Council to provide infrastructure servicesmeans that Bellevue members have to shoulder related financial burden.

g) The Ministry of Lands that had approved the change of use of landfrom agricultural to residential and issued the title deed.Bellevue land is part of a bigger piece of land that was sold by SyokimauCompany. The land, which has a single title, is currently registered in the nameof the Trustees: NACHU, Goal International and Bellevue ManagementCommittee. It is not, however, known whether Bellevue will still retain NACHU asa Trustee when the loan is fully paid.

2.3 Risk Analysis by Stakeholders2.3.1 Political Risk

The political climate in Kenya is stable but undergoing transformation followingpopular agitation by the citizens for review of the Kenyan constitution. Theclimate is bound to change, as politicians are rather divided on what path to takein the constitutional review process. There are, however, no indications that thepolitical environment might turn turbulent in the near future.

A political issue that is currently heading the debate is corruption. Governmentagency officials are known to stifle development efforts, because of their personalinterests that they seek through public offices. However, the punishment forcorruption, that saw the World Bank and the IMF withdraw financial aid support toKenya in 1997, has prompted the Government to adopt a more pro-activestrategy to wipe out corruption. The Kenya Anti-Corruption Authority wasestablished in 1998 and has, as its primary responsibility, the elimination of


corruption. To the extent that a structure exists for addressing corruption, the riskinvolved can be expected to fizzle out over time. This stands to be enhancedfurther through the existing stringent requirements of accountability andtransparency on the part of the NGO, as well as the public and private sector.

The bureaucratic red tape in Kenya is minimal now, with the decentralisation ofgovernment ministries. NGOs also, once registered, have a broader leverage ondetermining how to pursue their goals with minimal government or politicalinterference. The NGO code of conduct specifies the operational contraventionsthat might result to Government interference.

The Co-operative Act, Co-operative Rules, Society Byelaws and policy decisionsmade by its membership annually at its annual general meeting guide theoperation of a co-operative society. The Co-operative Act was reviewed and anew Act came into effect in June 1998. The new Act has given Kenyan co-operatives a new vision free from state control. The commitment by theGovernment to eradicate poverty16 has helped in setting up a supportive legalframework. However, the level of inflation that may erode purchasing power,speculation in land prices and adherence to stringent council regulations, willaffect the ability of co-operative members to access shelter and relatedinfrastructure.

In addition, the co-operative sector has been riddled with corruption. In someinstances, members of the management committees have connived with smallerprofessional firms and local co-operative officials to defraud the housing co-operatives. Given the low literacy levels and ignorance of the literate groupsamong the very low-income co-operative members, the risk of their beingcheated by the professionals is significant. Such groups therefore needprofessional guidance from NACHU, on issues of land purchase, sub-divisionsand processing of titles, and how to deal with the bureaucracy at the Ministry ofLands and Settlements and the local authorities. The co-operatives still alsoneed NACHU assistance in finance mobilisation and loan management, as wellas in setting up the general administrative and financial structures to support theirprojects and lay a foundation for financial transparency and accountability.

NACHU is non-political and can develop projects in any part of Kenya in both theruling party zones and opposition party areas. The Board representatives comefrom all seven regions of Kenya and not just one political area. All regions ofKenya are therefore adequately represented. Unfortunately, NACHU has not sofar been able to spearhead formation of housing co-operatives in North EasternProvince, but with the new Act now allowing NACHU to provide services to non-co-operatives, it will be easier for CBOs to access NACHU services.

2.3.2 Environmental Risk

The formation of Shelter Forum and the Nairobi Informal Settlement Co-ordinating Committee have helped reduce instances of slum fires (used byunscrupulous absentee landlords to evict slum dwellers out of squatting land). Inaddition, Municipal Council raids on slum dwellers after their failure to honournotices of eviction have reduced, owing to the campaigns and dialogue by thetwo groups with the Municipal Authorities and leaders in Government.

16 Government has formed a Poverty Eradication Commission. This has helped in incorporatingpoverty eradication measures in all its policy documents.


Many slum dwellers have been encouraged to form co-operative societies andsave to acquire land. Those who have managed like Bellevue feel much moresecure. The directive by the President that the council stops harassing hawkersoperating outside the central business district has reduced the council raids onslum dwellers businesses, highly common in the past. But even with this, thehawkers have no conducive climate for operation, and live in constant fear ofattach. The high rate of unemployment in the slums, particularly of women andyoung people, coupled with related health problems compounded by the highHIV/AIDS prevalence, pose a big problem to participants’ economic and financialability.

Hostile high-income neighbours are also a constant threat to the poor. One ofBellevue’s neighbours has encroached in its land and has refused to move,offering instead, to buy Bellevue members an alternative site to settle in, sayingthey do not deserve to live in that neighbourhood as they are an environmentalrisk to their neighbours.

Households produce most of Nairobi’s solid waste. Piles of rotting garbagethroughout the city constitute the most visible manifestation of Nairobi’s decline.Garbage often lies uncollected for months. The collection is virtually non-existentin low-income areas and none exists in Bellevue. Nairobi’s water resources areaugmented by bore-holes; many residents like Bellevue’s have often to walk formiles in search of water. Bellevue residents will be relieved when they finallyhave a water supply point on site.

Generally, the economic environment is very difficult for the low-income groups.Low wages, high inflation rate and a high dependency rate by low incomeearners reduce the amount of disposable income they can invest. However,judging by the experience of the credit programmes, targeting the poor that haverecorded average loan repayment rates on micro-credit of over 90%, there is anindication of improved economic activities, hence ability to repay loans, amonglow income groups. Moreover, the commitment by the World Bank andInternational Monetary Fund to release the Enhanced Structural Adjustment Fundsuspended in 1997, in the course of 2000, is likely to improve the economicenvironment in terms of investment and interest rates. In the housing sector, thelow levels on income and the high unemployment rate in the slums, meansfamilies can only afford very low levels loans of not more than KSh 120,000 atvery concessionary terms.

2.3.3 Legal Risk

The insecurity of tenure and the slow procedure of issuing title deeds for landconverted from agricultural to residential use remain a big handicap to many lowincome families. Bellevue is happy to have come through this process. Theissue of Trust Land ownership, although it helps to ensure security of the group’sland, can be complex for those not familiar with it, as it requires total commitmentby all members. The Co-operative Societies Act provides legal machinery fordisciplining non-compliant members. However, the involvement of other non-co-operative members in the Trust Deed arrangement can complicate the wholeprocess.

Resettlement of squatters in a new site like Bellevue makes site planning easy,as it is done before the people are moved on site. Where resettlement is doneon an already occupied site, legal issues related to legal ownership of the site


and relocation of those displaced by roads and other amenities, can be acomplex issue - as learnt by the developers who were resettling squatters in theMathare 4 project in Nairobi.

In the past (1992), politically instigated clashes have left many people displacedfrom their homes and their properties destroyed. Although this happened in ruralareas, it indicates the level of destruction that can occur if land issues are notsorted out. Protected security of tenure is critical in providing confidence to thosethat may be willing to improve their shelter.

2.3.4 Institutional Development and Implementation Risk

The environment for successful development of the co-operative housing inKenya depends not only on the policy framework in the co-operative sector andthe policy framework of the Kenya housing sector in general, but also on theattitude of the target groups.

Regarding the co-operative sector, Sessional Paper No. 6 of 1997, ‘Co-operatives in a Liberalised Economic Environment’ and the revised Co-operativeAct 1998 provide the policy and regulatory framework. Revision of the Act hasgreatly reduced the role of the government and increased the freedom andresponsibilities of the co-operatives. Before this revision, the government wasinvolved in all the co-operatives’ affairs, including annual general meetings,management committee meetings and even the resolution of disputes. Manydecisions made by the co-operatives were based on the guidance of governmentrepresentatives. The movement consequently relied heavily on the governmenton the day to day running of the co-operatives. The liberalisation allows co-operatives to seek credits from a variety of financial institutions in addition toSACCOs and the Co-operative Bank. Low-income families cannot, however,meet the lending conditions placed by the commercial banks.

As regards the government policy on shelter, this is currently under review. Theproposed policy supports development of an enabling framework with directinterventions. The paper proposes consolidation of the various Acts currentlyregulating the housing sector i.e. the Housing Act, the Local Government Act, thePublic Health Act, the Building Societies Act, the Physical Planning Act and theHousing Byelaws.

In the context of shelter needs and of poverty, official government policy isunlikely to have any significant impact. However, government participation insome shelter initiatives will contribute to a more enabling framework, includingthe introduction of more affordable byelaws and strategies to address informalsettlements.

NACHU operations are guided by the Co-operative Societies Act 1999 and itsown byelaws revised in January 1998. The current dynamic environmentdictates an urgent need for housing co-operatives to re-structure and re-positionthemselves by adopting a business stance, build leadership capacity andembrace flexible and modern management systems as a sure way for growthand organisational development.17 Although the government has liberalised theco-operative sector, NACHU will still need government support in terms of policy

17 Mr. Kamande, Chairman NACHU at the Board and Management Induction workshop in Nairobi inAugust 1999.


change to facilitate faster delivery of low-cost housing, provision of finance andland where possible and the reduction of taxation level on members’ savings.

NACHU currently faces a multiplicity of problems which include: shortage ofaffordable land for housing, high cost of short and long term financing, very lowincome-earning ability of most of its members and a poor saving culture, the lackof a proper savings scheme which could facilitate both short and long-termborrowing, and the reduction of donor funding towards housing and infrustructuraldevelopment in Kenya.

NACHU therefore needs to move fast to design innovative funding mechanismsfor housing and infrastructure development, to provide affordable sources offunding by mobilising finance from within the membership and from developmentpartners. This, however, will depend on NACHU’s fundraising capabilities,commitment by its various stakeholders, ability to undertake good and wellplanned projects and its ability to offer services at full cost recovery. NACHUshould also extend its services to non-affiliated co-operative societies.

NACHU is capable of providing services to CBOs related to advising onappropriateness of a proposed site for development, producing designs and costestimates, analysing member affordability and developing an affordable budget,producing bills of quantities where necessary and supervising actual projectimplementation (tendering, construction and supervision, inspection andassessment) to CBOs. In addition, training opportunities in the technical aspectsof financial management, including assessment of candidates for housing loans,collection, recovery and repayments, are offered by NACHU’s CommunityEducation Department.

Experience has indicated that the co-operative model has advantages ofreducing costs by acquiring land collectively, organising community self-helpconstructions, purchasing building materials in bulk and negotiating loanscollectively. They can also foster community cohesion by facilitatingopportunities to construct social facilities, such as nursery schools and supportincome-generating activities. The co-operatives’ legal and regulatory structure iswell set up, as opposed to the CBO one which has remained very loose. Therequirements to register an NGO in Kenya are quiet rigorous; as a result manylow income groups cannot meet some of the required conditions. Other than theCBO, the co-operatives are the next best alternative vehicle for the poor inimplementing their housing projects.

Their disadvantages include pressure by members to have individual land titles,which sometime cause disintegration of the co-operative and inability tosafeguard co-operative property from being grabbed by the rich. They have notso far been able to effectively mobilise short and long term finance for theirprojects. Poor leadership, limited knowledge and skills required to manage ahousing co-operative, corruption and a lack of clear policies and strategies, aremajor bottlenecks to efficient operation of some of the housing co-operativesocieties.

Administrative and financial management of community-based organisations hasbeen a major problem, owing to the low literacy level of membership and a lackof knowledge in the area of housing co-operatives management anddevelopment. NACHU should consider providing training in such areas at a fee.The training so far have been undertaken using donor funds. NACHU, rather


than the CBOs, has mostly identified such training. CBOs should be encouragedto identify areas of weakness among their management systems and seekappropriate training to rectify the situation. Lately, NACHU has incorporatedmember need analysis in its education programmes.

2.4 Risk Management and Mitigation by StakeholdersDespite housing such a large proportion of the urban population, informalsettlements continue to be ignored by local authorities and urban planners. Abaseline assessment by NACHU of Nairobi’s informal settlements (1991) andtheir inhabitants revealed the following characteristics. The same fit thedescription of the Bellevue project.• The roads are planned but not developed; this makes the place almost

impassable during the rainy season.• The drainage systems are within reach but not accessible to the settlements.• Most of the houses are poorly constructed and need to be re-done or

rehabilitated.• The inhabitants have not been provided with water individually and have

therefore to buy from the neighbours.• The cost of putting up toilets is high; therefore most of them have no toilets or

share very poorly constructed ones, which are often full, poorly covered, lackprivacy and are not maintained.

• Houses are made of mud walls, old iron sheets or paper. Few have put upone or two stone rooms, which are permanent. Most floors are not plasteredor covered.

• The majority of its residents have no formal employment and therefore noregular income.

The risks associated with investment in such projects are very high and couldinclude inability to repay the loan or not using it for the intended purpose, andinability to construct or rehabilitate the houses to acceptable standards owing tolack of technical know how by members. Allowing rehabilitation means thelender loses control over the house design. Low literacy levels of the co-operative members and lack of personal commitment can also threatenoperational sustainability. There is no insurance policy in Kenya that can coverrehabilitation loans against death or loss of job by the borrower. A number ofBellevue members have refused to move to the project site owing to the lack ofeducational facilities for their children.

The high cost of sub-division means most of the members cannot afford to payfor individual plot titles. Again, giving them individual titles exposes them totemptations of being bought out by rich landlords. While it is important to ensuresecurity of tenure by members, foreclosure in case of default in repayment canbe a complicated matter if no proper default procedure is agreed with members inadvance. Even with guarantees, financial institutions and banks shy away frominvesting in low income upgrading schemes, saying they can be politicallyexplosive. As in case of foreclosure, the expenses related far exceed the amountof loan extended, making it difficult for the banks to even try to recover the actualloans.

The NACHU experience indicates that rehabilitation programmes have beensuccessful in reaching the low income target groups, and there are indicationsthat, unlike many other programmes, the beneficiaries will not sell out to higherincome groups. This is as a result of the community solidarity that has been


engendered. Beneficiaries gain economically through sub-letting the extra roomsconstructed as part of the house, and through improved living conditions.

NACHU has instilled a proper reporting system of repayment and is institutingstrict monitoring procedures by itself and the groups. Use of the power ofattorney given to the society to evict those who are completely unable to makerepayments, and additional guarantee by three other members, help to putpressure on defaulters and give an incentive to all members to follow-up adefaulter. It is not the poorer beneficiaries who default in loan repayments butthose who are actually able to pay.

Co-operatives with loans are advised to have regular meetings (each month) tostrengthen monitoring and follow-up. Furthermore, some co-operatives haveformed separate committees to follow-up defaulting members and makedecisions on appropriate action to be taken over loans in arrears. There are alsoproposals to create self-administered loan insurance fund to cover related risksrelated to death or incapacitation. At times, poor repayment may result from poorselection of the borrower. A mechanism has been put in place to ensure thatonly those qualified to screen borrowers are involved in the exercise. TheDepartment of Co-operatives should facilitate the formation of a Tribunal Court toassist in resolving differences among co-operative members.

The provision of mortgage protection cover should be investigated. This cover,however, is not available for participants over the age of 60. NACHU has alreadyintroduced fire insurance for rehabilitated houses, as this is reasonablyaffordable.

A need to introduce Project Accounting to be able to track down costs and beable to evaluate the economic viability of different housing projects, to reduce thecurrent level of subsidy in the projects, has also been recommended. Societiesare requested to buy individual shares in NACHU to confirm their ownership ofthe organisation and pay their loans on time to support NACHU’s sustainabilityplans. Continuous training of co-operative members and the need to work veryclosely with them in the screening, management and administration of theirproject, will help build up capacity of co-operative leadership and help resolve anumber of problems.

At the national level, the stakeholders have little control over the generalperformance of the Kenyan economy. They are not in control of issues that maydiscourage investors and therefore reduce opportunities for employment, factorsthat reduce their purchasing power and raise the level of inflation and interestrates. However, recent positive discussions between the Kenya Government andthe International Monetary Fund (IMF) have sent some positive signals. TheKenya Housing Policy is under review. The proposed policy supports thedevelopment of an enabling framework with direct interventions. Hopefully, thegovernment will soon come up with a comprehensive policy to address informalsettlement problems.

Local authorities are being requested to allow use of Grade II Building Byelaws tohelp reduce the cost of houses constructed by low income families and thereforemake them affordable.


3. OPPORTUNITIES FOR EXTERNAL OFF-SHOREFUNDINGHousing agencies in Kenya have an opportunity to access off-shore fundingthrough two channels. The first option is by direct borrowing in hard currencyfrom foreign banks, multilateral or bilateral donors and aid agencies. The secondoption is by working in collaboration with a local financial institution willing to lendfunds for housing on provision of a guarantee by a foreign bank, donor oragency.

The collapsed USAID Private Sector Housing Guarantee Programme, planned in1984 (section 1.33), was based on the second approach involving private localbanks. The programme failed because USAID needed a Kenya Governmentguarantee to proceed. The government could not guarantee funds to the privatesector and the issue of who bears the exchange risk could not be resolved to thesatisfaction of all the parties.

If this Programme were to be reintroduced today, it would still not work as long asgovernment guarantee is a pre-condition for lending, as the government does notguarantee any borrowing by the private sector (which includes private individuals)and does not require such borrowing to be referred to the Central Bank of Kenya.

The second option of having a local financier participating in lending for lowincome housing and infrastructure development, while a foreign financierprovides such guarantee, was tried again by USAID on the Kariobangi project.USAID had given the Co-operative Bank cash amounting to KSh 10 million (theBank having previously refused to rely on a promised guarantee by USAID andinsisting on a cash guarantee) to enable the bank to provide the remaining fundsto support completion of the required 526 houses and manage related loans.USAID had already provided US$ 1.2 million for the initial 118 units.

The bank initially agreed, but later changed its mind after receiving the money.Their argument was that small loans are expensive administratively, most ofKariobangi members were over 55 years old and could not therefore service longterm loans, members relied on informal income which could not be verified, theindividual members did not have individual plot titles. The bank policy does notallow group loans. But even if it did, the Kariobangi Society did not have themanagerial and administrative ability to manage such loans. The Co-operativeBank is still holding the funds that have since grown to over KSh 20 million.

In 1989, NACHU supported the construction of 40 housing units for KimuteHousing Co-operative Society, composed of Primary School Teachers in Kisumu.NACHU designed the houses, provided all the architectural services andnegotiated for construction finance with the Co-operative Bank. This wasapproved on the understanding that long term finance will be available fromSavings and Loans Kenya, a long term housing financier. Prior to theseapprovals, the income levels and sources of Kimute members were provided toboth financiers for verification.

When the houses were completed, Savings and Loan backed out of the deal.Among the reasons for withdrawal was the age of the borrowers. The bankargued that the age of the borrowers could not allow it to provide mortgageprotection insurance cover for their mortgages. The bank could not lend to those


unable to qualify for mortgage protection insurance cover. The Co-operativeBank was therefore forced to convert the short term loan into long termmortgages and manage the loans directly.

While off-shore lending provides opportunity for local financiers to access cheapsources of finance, and if successfully implemented could lead to the provision ofadditional housing and infrastructure services to low income members, localfinanciers argue that the risks associated with such investments far outstrip theanticipated benefits. Based on the Kariobangi experience, it is unlikely that anylocal financier will be willing to finance Bellevue Housing Project, even withexternal guarantee. Generally, issues of capacity building for beneficiaries andinstitutions involved need to be critically addressed before any guaranteearrangement is considered.

The only possible option is for the co-operative sector to mobilise its own initialfinance for housing, for example using the KUSCCO Housing Fund or NACHURehabilitation/Pool Fund (section 1.62). This, however, will involve examiningthe operation of the two funds and choosing the best option. KUSCCO HousingFund is already lending for housing to individual members of savings and creditco-operative societies. The NACHU pool fund is still at the planning stage. Bothinstitutions understand well the needs of low income co-operative members. Thedifference, however, is that the majority of KUSCCO’s members are in formalemployment and therefore have verifiable income, while the majority of NACHU’smembers derive their income from the informal sector. Administrative issuesrelated to the control and the management of the selected fund will also need tobe sorted out. SACCO members have already requested that the organisation oftheir individual housing co-operatives and related construction activities beundertaken by NACHU. External guarantees could then be targeted at theselected fund.

The implementation of low income housing guarantee programme is hamperedby the risks associated with the inability of the borrowers to repay the loans, thedifficulty of having a local financier willing to participate in the project and providelocal financing, and access to usable land for development. Land is available butexpensive. The inability of some of the borrowers to provide sufficient securitiesfor loans (individual land titles) or guaranteed regular income, and the absence ofa strong local NGO to support implementation of the planned projects, have alsocreated obstacles. NACHU has the capacity, but needs to work hard to improveloan performance of its existing rehabilitation projects and charge what it actuallycosts to deliver such services. It is only then that it will be able to assess for itselfwhether indeed, investment in low-income housing projects is a profitableinvestment.

With regard to the inability of borrowers to repay loans because of the lack ofincome sources, a close working relationship between Bellevue and a micro-finance institution would be important. This would encourage micro-financebeneficiaries to run economic activities whose return they could use to servicethe housing loans. Absence of a deliberate intervention to improve economicactivities among the low income groups jeopardises the sustainability of housingschemes targeting low income households. Since the majority of low incomegroups lack regular income sources, it would be wise to explore the potentialbenefit of building in micro-finance services into the co-operative housing modelin general. Through this, the economic positions of the housing beneficiaries


may be improved and hence enable them to service their individual house loansmore effectively.

As an alternative, NACHU could work closely with micro-finance organisations,so that their beneficiaries could be facilitated or encouraged to save for housing.In this case, the micro-finance agencies will be used as entry point to accessinghousing loans. Under this arrangement, only those beneficiaries performing wellwith their micro-finance loans will be considered for housing loans.

Lastly, housing co-operatives could be supported to develop their own micro-finance programmes for their members, particularly those who are unemployed.The only problem will be whether to limit the micro-finance programme tomembers only and thus limit its scope or open it up to other interested lowincome households. Whichever the option selected, there are bound to beoperational difficulties that would require serious analysis, particularly sincemicro-finance has now become a specialist area with the technical means ofrealising success.


NOTES AND REFERENCES

1. Republic of Kenya. National Housing Strategy for Kenya, 1987.Department of Housing, Ministry of Works, Housing and Physical Planning.

2. National Co-operative Housing Union Ltd. A survey of Informal Settlementsin Nairobi, 1988.

3. Lennart Lindkvist, November 1989. UNDP/ILO/Government of Kenya.Strengthening of Housing, Savings and Credit and Consumer Co-operatives.

4. Raymond J. Struyk and Piet Nankman. The Urban Institute. Developing aHousing Strategy for Kenya: Recent Housing Production, MarketDevelopments and Futures Housing Needs.

5. USAID Country Development Strategy Statement. Kenya FY 1986,unclassified

6. UNCHS/HABITAT. Global Strategy for Shelter to the Year 2000. Role ofNGO and Community Based Sector.

7. Contribution of Co-operatives to Shelter Development in Kenya. By GrahamAlder and Paul Munene, October 1999.

8. Micro-Save Africa. Dropout amongst Kenyan Micro-finance Institutions.Researched by David Hume, John Kashanganki and Henry Mugwanga,June 1999.

9. Shelter Forum Annual Event 1998: Strengthening Partnerships for SaferCities through Poverty Eradication and Affordable Shelter Development.

10. K-Rep Notes, Vol. 1 No. 1, September 1999. K-REP Bank: A New Player inthe Financial Sector.

11. K-REP, Strategic Approaches to Support Sustainable Credit and SavingsActivities. By Rose Mwaniki, Regional Manager K-REP, November 1996

12. Kenya Women Finance Trust. A Case Study of Micro-finance Scheme. ByWashington K. Kiiru and Glen D. Pederson, December 1997.

13. You and the Law. Co-operatives: Formation, Management and Settlementof Disputes. By Victoria Mucai-Kattambo, 1992.

14. Catherine Gichuki, Community Development Officer-NACHU. Report onNACHU Board and Management Staff Induction Workshop, Nairobi, August1999.

15. NGOs and Shelter in Kenya. Shelter Forum Seminar Proceedings 10-11,March 1992. Sponsored by Ford Foundation.

16. Kenya Government. National Development Plan, 1997-2001


17. Kenya Population Census, 1989. Analytical Report: Volume X, Housing

18. Kenya Impact Evaluation Report. Development of Housing, Water Supplyand Sanitation in Nairobi. Report No. 15586. By the World Bank. April 25,1996

19. Institute of Policy Analysis and Research. Towards Indiginising the PolicyDebate. From Sessional Paper No. 10 to Structural Adjustment. Edited byNjuguna Ngethe and Wasunna Owino, 1995.

20. Henry Oloo Okech, Kenya Rural Enterprise Programme. NACHU HousingRehabilitation Loans Project. A Survey of Delinquent Loans, September1995.

21. University of Bradford Management Centre, Working Paper No. 9725.Ensuring Effective Provision of Low Cost Housing Finance in India: An In-depth Case Analysis. By R. Platt. November 1997.

22. Central Bureau of Statistics. Republic of Kenya, Economic Survey 1993.

23. T. F. Express Ltd. Development of Credit and Financial Management. PIPLiterature Review. February 1997. Prepared for the Ministry of Agriculture,Livestock Development and Marketing.

24. Republic of Kenya, Ministry of Public Works and Housing. Draft HousingPolicy for Kenya. March 1997.

25. Matrix Development Consultants. A Review of National Co-operativeHousing Union (NACHU), for Ford Foundation, September 1994.

26. E. H. A. Mugwanga. Use and Impact of Savings Services for Poor people inKenya, May 1999. Prepared for MicroSave Africa.

27. Non-Governmental Organisations Co-ordinating Act, 1990 and 1992.

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